Video blogging platform Keek has gone public on the TSX Venture Exchange, through a reverse takeover deal with Primary Petroleum Corporation, a small oil and gas company.
The deal will also see Keek get a new CEO and board of directors.
A reverse take-over, also known as a backdoor listing, is when a publicly-traded company, usually one without many assets or operations “takes over” a privately-held company – usually one that’s doing a business and looking to grow – generally through an exchange of shares. The publicly-traded company then “becomes” the formerly private company, taking on its name and operations. The process allows private companies to be listed on stock exchanges faster and with less disclosure than an IPO would allow.
While Primary Petroleum has been losing money since it was founded, it had a significant amount of cash on-hand, over $16 million at the end of November. That’s cash that Keek appears to have needed. In a regulatory filing submitted in late January, Primary’s management said the company had already loaned Keek $1.6 million and was ready to advance another million.
The loans came after rumoured $100 million financing deal appears to have fallen apart in the fall. By the end of October, the company’s co-founder and CEO Isaac Raichyk was out.
But Keek still needed the cash. During the six months that ended Aug. 31, 2013, Keek lost $13 million. That’s almost twice the burn rate the company had during the previous fiscal year, when it had a net loss of $15 million. Taken together, that accounts for almost the entire $30 million the company raised in venture funding.
While an information circular issued to Primary shareholders at the end of January by management recommended that they approve the transaction, it does contain some warnings – namely that “Keek currently has no revenue. If Keek fails to engage advertisers, it will be unable to sustain its business over time.”
The company’s plan, at least in the short-term “is to develop and implement a monetization model through, but not limited to, online and in-app advertising, sponsorship and product sales. Keek is currently working with media buyers, advertisers and service providers to commence Keek’s monetization strategy.”
Keek, which has over 63 million users and had around 12 million unique views during the most recent quarter, plans to introduce in-app and on-site advertising over the course of the coming year.
The deal will see Mike Marrandino, who was Primary’s CEO, stay on as CEO of the new Keek. This isn’t the first time Marrandino has been involved with a tech company. He was a co-founder of Chartwell Technologies in 2000. That company, which specialized in online gambling, was sold in 2010 for $40 million.
The transaction appears to have been a good one, so far, for both company’s shareholders. Primary issued around 190 million shares – valued at 10 cents each – to Keek’s shareholders as part of the deal. That gives the former Keek shareholders a little over 55 per cent of the new company.
On Monday, shares of Keek (TSX-V: KEK), were trading above 20 cents each. Shares in Primary had been at that level since Jan. 22, when the company revealed more details about the transaction. Before that, shares in the company had been hovering around 10 cents each.