Over and out.

That’s the state of affairs for Michael Thomson, who is closing out a 25-year career in the world of capital pool companies with his final deal — a $1 million fund raising for Soleil Capital Corp. — now trading on the TSX-Venture market.

Under the rules, Soleil Capital — where Thomson is a director — has 24 months to seek out a qualifying transaction, a process that will see a former private company go public. Soleil is following the path of an earlier Thomson-inspired CPC, Roll-Up Capital, which announced a qualifying transaction in December.

Thomson, who’s been a party to more than two dozen CPCs in his career, plans use the skills he’s acquired to the charitable sector. He is a new director of the Canadian Cancer Society where he plans to be an active fund-raiser. “The cause is personal,” noted Thomson who has had two cancer surgeries since 2010. The CCS received 70,000 charitable stock options from Soleil.

But he remains a strong supporter of CPCs, arguing they represent a cleaner, neater and more cost-effective way for a company to go public especially when compared with the traditional alternative. “It’s a quick and predictable process,” noted Thomson, which contrasts with the normal go-public situation, which can take at least six months to complete — with no guarantee of success given the new issuer is exposed to market risk. “In the IPO process, you need a clear runway of good markets,” said Thomson.

But he has some reservations about the way CPCs have evolved.

Those include that the regulatory review process has become longer and that CPC’s have largely become a “commoditized” product, which, he says, makes it difficult for the founders to command a premium value.

In the IPO process, you need a clear runway of good markets

“The risk/reward for principals (those who form and provide the seed round of capital, and then take it public) has not been altered,” said Thomson. “Previously you could find liquidity (or the ability to sell your shares) as soon as you did a qualifying transaction. Now your money is put up for longer, as part of an effort to build the company.”

In other words the process takes longer and is less lucrative compared with the past. “It’s almost a full time job,” he said when lauding the efforts of a group of independent dealers who are still active.

Those dealers, which include Cormark Securities, GMP Capital, Mackie Research, and PI Financial, take the issuer public and then help seek out a potential target. In 2016, 17 CPCs were listed on the TSX-V, up from 14 in 2015 but down from 21 in 2014.

Another CPC veteran also noted how the shortage of independent brokerage firms, enhanced scrutiny from IIROC — which deems the CPC be a high-risk stock — and the absence of an after-market have made CPCs less popular than previously. He contrasts the rules that apply to CPCs with the relative free-for-all in the world of crowdfunding.

Among them:

The cost of capital has increased, meaning less money for a qualifying transaction.

Financings, both at the IPO stage and when a qualifying transaction is announced, have increased. For instance, $250,000 was raised in Roll-Up’s IPO in 2015 — one quarter of what Soleil raised.

When selecting a potential target, there is greater emphasis on the management team behind the project than on the asset or project being vended in. “Junior mining deals used to be location, location and location. Now it’s people, people and people,” said Thomson, adding deal making has become more difficult because of the value demands of potential targets.

Financial Post
bcritchley@postmedia.com