Successful Uplisting for Issuers – ValueWalk Premium
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Successful Uplisting for Issuers

Micro and Small Cap Extra

Uplisting to a senior exchange such as the NASDAQ or the NYSE AMEX is the dream for all microcap companies and the entrepreneurs that run them. Uplisting can be a transformative event for a publicly traded company for all the same reasons a traditional IPO can be.

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Exchanges like the Toronto Venture Exchange, the OTCQB and the London AIM exchange are often referred to as “lite exchanges,” which offer great promise but a statistically low probability of success for investors and the companies they invest in. These lite exchanges have looser listing rules and are tailored towards smaller and more speculative ventures. In any given year, dozens of publicly traded companies move to Nasdaq and NYSE from other trading venues.

Why Uplist?

Many quality funds have mandates that preclude them from investing in illiquid and/or OTCQB traded entities. This, by definition, limits shareholder access for many lite exchange companies, and means that listing on a national exchange exponentially opens up the universe of potential investors.

Uplisting can have a profound effect on the immediate and long-term valuation of a company

With these newly opened doors, recently uplisted companies benefit from higher trading volumes and, as a result, greater liquidity. Liquidity can be a key factor in a fund manager’s decision to own a stock, as well as financial and other structural factors.

Additionally, by virtue of trading on a national exchange, companies may meet the threshold for many Wall Street analysts to cover the company with research. In other words, listing on a main exchange is like a stamp of approval from Wall Street. Garnering research opportunities helps to broaden visibility, awareness and extend reach to new investors through their sales organizations, thus potentially driving further revenues. All of this factors in and creates self-propelling momentum for an uplisted security.

The Core Four

Here are the four main benefits of uplisting to a senior exchange

  1. Capital Anyone? It is easier to raise capital on better terms on a higher exchange. Companies that trade on the Nasdaq or NYSE are eligible to raise capital pursuant to a shelf registration. That means you can register new stock offerings but pull the trigger and issue the stock up to two years later taking advantage of financing windows and favorable market conditions. It lets you raise more money, more consistently, fueling company growth.
  2. Analyst Coverage. Companies traded on a major exchange have a far better chance of receiving research analyst coverage. In many ways, analyst coverage helps drive investment activity, but most investment banks do not provide coverage for OTC companies. In the early periods after uplisting, a company usually gets coverage from top analysts at different investment banks as well other independent research firms which will make a company’s stock more attractive to investors. In many cases the analyst coverage goes hand in hand with a financing.
  3. Visibility. Uplisting to a major exchange essentially gives your company a very visible platform. For example, listed companies work closely with Nasdaq and/or NYSE to leverage their unique visibility assets.
  4. Trade Monitoring. Uplisting to a major exchange provides your company with regulatory oversight in terms of monitoring against potential trading violations. This should allow your company to avoid much of the short selling issues that regularly occur for companies that trade on the OTC Markets.

Note on Reverse Splits

Reverse splits are a sign of good things for companies on the way up, but a sign of bad things for companies on the way down.

In order to meet the minimum share price requirements for NASDAQ, many companies will conduct a reverse split. This is perfectly acceptable to the exchange, and the post-split share price will be evaluated accordingly.

Using a reverse split to raise the share price and obtain an uplisting is a very positive sign for a company and is much different than companies that use a reverse split to prevent being delisted. Confusion may relate to delisting as opposed to uplisting. Many people who don’t focus on uplistings only encounter reverse splits in the context of companies that are trying to stave off a delisting, so in many people’s eyes a reverse split is a sign of a troubled company.

Listing Requirements

Without going into great detail, there are three main standards under which a company can get listed on the NASDAQ: the Equity Standard, Market Value of Listed Securities Standard, and Net Income Standard. For small and microcap companies, the Equity Standard, which means reaching a minimum level of stockholders’ equity, is a common path towards meeting the uplisting criteria. Here is a link to the NASDAQ listing guide which goes over their criteria in fine detail.

Note that the required share price to uplist to Nasdaq is $4. The price is determined by the bid price, not the closing price, of the stock. In April 2009, Nasdaq lowered its share price threshold to $4 from $5. This was presumably due to the impact that the financial crisis had on share prices but could also be seen as a move to take some business from the Amex exchange. Both the Amex and the Nasdaq charge substantial listing fees to companies for listing on their exchanges and both are eager to maximize revenue. Amex has a lower required share price of $2 to $3 for an uplisting.

Once you decide to uplist, it is suggested that you make a strategic plan with month-by-month deliverables and timing expectations. The process can be distracting for any management team, and it’s important to ensure that requirements are met well in advance of the application process. There are a number of conditions we previously noted that companies must meet in order to move from being traded OTC to being listed on the NYSE or NASDAQ; broadly speaking, these conditions fall into two categories: meeting listing requirements and successfully working through the application and approval process. It is imperative to factor in long-term objectives and milestones when considering an uplist.

Timing and Success

All in, the timing and success of uplisting is not predetermined and can be uncertain. There are many variables in play, and many of the requirements should be considered long before the process begins. Given the effort and cost (direct and indirect) associated with uplisting, a company needs to fully understand the process and have a solid strategy in place before proceeding.

Graduation Day

For a microcap stock uplisting signifies graduation to smallcap or even midcap status as the market cap escalates beyond $300M. The day announcing the successful uplisting of a stock is certainly a bell ringing event and the second most important day in the stock since becoming a public company!

In conclusion, like any sector, microcaps have their star performers. In the early years of the new millennium, dotcoms were hot. Today, biotechs and life sciences are on a tear. Tomorrow might see a resurgence of tech stocks. That’s what’s exciting about the space – the innovation and entrepreneurial initiatives. Please keep in mind that when microcaps successfully up-list are not out of the woods. They’ve got to make sure that they stay listed, and they have to be more earnings conscious. They’ll be followed by a wider audience – an audience with expectations of earnings, growth, new product development and distribution, etc. But that’s one of the benefits of being visible on the larger exchanges and the excitement of being part of the microcap space. When a microcap delivers on this potential, investors get the pleasure of watching both the company and its valuations grow.

Article by Investor Summit


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