Exploring the benefits and challenges for listed public companies to “uplist” to major stock exchanges like the NASDAQ or NYSE.
Introduction to small & microcap trading.
- A microcap stock is a relatively small company with a typical market capitalization greater than $50 million, but less than $300 million.
- Many microcap companies trade ‘over the counter’ (OTC) on the pink sheets. These ‘off-exchange’ broker–dealer networks are easier to join, with suitably lower listing standards, but all-in-all much less beneficial for the company.
- Engaging with these stocks is riskier for investors: there is less quality information available, and the companies tend to be less stable, with more volatility.
The benefits of ‘uplisting’.
- The obvious goal for micro & small cap companies: ‘uplist’ to the major leagues. ‘Uplisting’ is literally the process of elevating from the smaller exchange (e.g. OTC, ASK, TSX) to the likes of NASDAQ, NYSE, LSE.
- There are formidable benefits to joining a major stock exchange, such as:
- It’s essentially a stamp of approval. A mark of credibility and prestige that improves company perceptions
- Focused attention in the marketplace from investors
- Reduced price volatility and more stability
- Importantly, greater liquidity and increased capital
The process, and the minimum requirements.
- Of course, it’s not that easy. Major stock exchanges are like private parties. Not just anybody can just walk in. Only a certain calibre of the company can be included.
- Uplist takes a specific process, with the company providing financial documents and complying with financial and regulatory requirements. These are variables depending on the exchange and situation, but a few key examples are:
Minimum share price
- First and foremost, the price per share needs to be at a certain value. e.g. for NASDAQ, this is $4.00 per share.
- To help bump these up, a common tactic is the ‘reverse split’, in which companies consolidate existing shares into fewer, more valuable shares which increases the price per share. For example, if the share price was $2, and the company had 500,000 shares, this would become $4, with the shares being reduced to 250,000
Number of shares and shareholders
- The company needs a minimum number of shares.
- With NASDAQ, a minimum of 1,250,000 publicly traded shares are required held by at least 550 shareholders with a collective market value of $45 million.
- With the NYSE, companies need to have 1,100,000 publicly held shares held by a minimum of 2,200 shareholders with a collective market value of at least $100 million.
- The requirement for a minimum number of shareholders is there to induce liquidity in the marketplace after the company is uplisted. Attracting the attention of strong investors can be a core part of the strategy.
- NYSE and the NASDAQ demand that companies have sufficient cash on the balance sheet, and often companies will need to raise money for the uplift.
- There is also a minimum ‘shareholders equity’, referring to the amount of capital shareholders have (after liabilities and debts are paid). For example, NYSE has a $15 million threshold
Corporate governance standards
- An application must be submitted, along with a number of financial statements.
- There will be disclosure around executives, financial standards and communications.
- These will be closely audited, looking for potentially dilutive security liabilities that must be remedied, such as complex convertible securities with embedded optionality.
- NYSE and Nasdaq also require an Independent board of directors, who will be scrutinised by the exchange. Companies need both:
- Audit Committee
- Compensation Committee
How to ensure success.
Project management is key
- Major exchanges have strict processes and communication paths that require a strong level of project management. The complexities cannot be completed without good coordination. Keeping on track with the timeline, and proactively negating potential risks is key, and will prevent issues and manage the costs.
Be prepared for full transparency
- The company will be under increased scrutiny. It is important companies do their due diligence to make sure they’re operating to the highest possible standards. Companies need to be prepared upfront to disclose anything interesting to the exchange. This is a common reason for denial, and it is better to be open and honest from the get-go.
Have the process led by an expert
- Uplisting is far from simple. There are a number of variables and decisions that requires the knowledge of an experienced leader to push it through to the finish line. It is a meticulous process, but one that is very possible with the proper guidance.
Where Vine comes in.
The hurdles can appear daunting, but the benefits to a company can be transformational.
Successful uplistings are built on solid teams, and Vine Advisors have a long-standing reputation elevating companies to the major leagues. We take an in-depth approach, getting under the skin of your business to understand the best way forwards for you.
Chat with one of our friendly advisors about what we can do for you.