EDITOR’S NOTE: There has been a lot of investment activity lately, especially in the tech sector. This is a “behind the scenes” look at how the deals come together.
Metamaterial Inc., a Dartmouth nanotechnology and composite materials company, is betting a reverse takeover by a little-known U.S. junior oil and gas company with a listing on the NASDAQ stock exchange will help propel its growth.
In the capital-intensive technology sector, access to capital is an important attribute, especially when a company like Metamaterial is transitioning from being primarily a software company to becoming a manufacturer. The need for capital often leads small companies to go to the expensive process of a direct listing on one of the major exchanges via an initial public offering.
George Palikaras, president and CEO of Metamaterial, told me in an interview Friday that the time and expense of going the IPO route on the tech-heavy NASDAQ exchange in New York, for example, is beyond the financial capability of a relatively small company.
Instead, Metamaterial got a partner that could help shorten the process. After a search, Torchlight Energy Resources Inc. of Plano, Texas was found as a willing participant in the scheme that will result in a prestigious listing for Metamaterial on the NASDAQ in exchange for about a quarter of the Nova Scotia company.
Palikaras said the shareholders of Metamaterial will continue to hold 75 per cent of the new entity. He believes it is a good deal because a direct listing would likely have resulted in a 30 per cent dilution of shareholders’ equity.
And the listing will allow the Nova Scotia company to attract sophisticated investors, knowledgeable in tech companies, he said.
Just as Metamaterial has been looking to gain a listing on the NASDAQ, Torchlight was reportedly looking to get out of the weakening oil and gas sector, and it realized that perhaps its most valuable asset was its listing.
A reverse takeover is defined as one company acquiring another, but the owners of the company being acquired end up as the majority owner of the newly combined entity. That’s what would happen if the acquisition of Metamaterial by Torchlight Energy Resources is completed as planned.
I’m told that the management of Torchlight was introduced to Palikaras and, after exchanging their analysis and data, they took about six weeks to negotiate a non-binding letter of intent, which was signed Sept. 15.
The deal will be final on or before Nov. 2. The current owners of Torchlight will continue to be liable for what remains of the company’s oil and gas properties. According to the letter of intent, any remaining oil and gas assets will be sold off by June 30, 2021.
Metamaterial will have five of seven directors on the board, the Torchlight investors will have one and another director will be chosen by both Torchlight and Metamaterial.
Metamaterial develops clean technology and advanced materials. Three and a half years ago, according to Palikaras, it transitioned to also become an equipment manufacturer for the automotive, aerospace and defence, energy, consumer electronics and medical markets.
Recently, the company signed a 10-year lease for about 53,000 square feet of space for its expanding holography and lithography research and development labs and the next phase of its volume manufacturing. It is located in Highfield Park, in Dartmouth, in a building owned by Rank Inc., led by brothers Joe and George Ramia.
Palikaras said his company has specific needs, and if it wasn’t for the Ramias, Metamaterial would have been forced to go to another province. Instead, he said, it is likely that it will attract other tech companies to the area.
The plan is for Metamaterial to take over the new space by the end of this year.
