YuuZoo, a Singapore-based company that creates customized social networks for clients around the globe, has completed a reverse takeover of Contel, a declined hardware firm listed on the Singapore Exchange. The deal was announced last month. This gives YuuZoo a backdoor into the stock exchange, bypassing the traditional, complex IPO route which could take more than a year.
In a reverse takeover, a public company acquires a private company, only for the shareholders in the private company to become majority owners of the combined entity. The main purpose of a reverse takeover is to gain easier entry into the stock market.
This maneuver, while seemingly rare amongst web and mobile companies, is quite common in the corporate world. Examples have included The New York Stock Exchange, which was acquired by Archipelago Holdings, and Atari, which was bought over by JT Storage.
This marriage between YuuZoo and Contel is intriguing for a number of reasons. Contel, which manufactures electronic products and gaming peripherals, has seen it shares decline from its peak of USD 4.15 a share to USD 0.08 this year.
Its financial statement paints a bleak picture as well. In the last financial year, it registered a loss of USD 1.6M while generating sales of USD 3.2M. It had also disposed of over USD 24M in assets, indicating drastic cutbacks and a scaling down of operations. It had a net asset value of USD 62M in 2008.
YuuZoo, meanwhile, made a profit of USD 4.5M in 2011 through a mixture of product sales and client services. It creates turnkey social networks and develops web and mobile platform for clients. A specialty of the company is in enabling e-commerce through its payment gateway and POS platforms.
One of its clients is Mogi, a Singapore-based startup that has launched its mobile wallet in the country. YuuZoo had developed the company’s mobile consumer app as well as the admin interface for merchants.
The company was founded in 2007 by Ron Creevey and Thomas Zilliacus. Thomas was formerly the regional director and President of Asia Pacific for Nokia. Its CTO is Asim Qureshi, who was the Director of Service Delivery, Solutions and Products at Bubble Motion, a Singapore startup running a voice-based social network.
While YuuZoo had aimed to IPO in the NASDAQ by early 2013, it’s unclear why it has now decided to list in the SGX through a reverse takeover.
Such a move has downsides: It could drive away retail investors due to the perceived higher risk from fraud and other abuses. Costs of merger could also be driven up by the need to educate the market on the merits of investing in the old-new company.
The combined valuation of YuuZoo and Contel also seems rather high. According to the press release, YuuZoo shareholders will receive SGD 582.3M (USD 472) in new shares (at SGD 0.5 per share). It’s unclear how this amount is derived — Contel does not have much assets to its name, and YuuZoo’s latest revenue figures have not been publicly revealed.