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Why Updater Inc. (ASX:UPD) wants to de-list from the ASX

The share price of start-up company Updater Inc., (ASX: UPD) rose 2% to $1.22 this morning after the company today announced plans to de-list from the ASX. Due to strong interest from overseas investors, Updater wants to go private to permit venture capital funds to invest in the company.

These investments will allow Updater to rapidly scale its business to increase its rate of growth, which the company stated will likely require substantially more investment.

As part of going private, shareholders may elect to retain shares in the private entity business, or tender their shares for a buyback at either $1.25 per share or the volume-weighted average price (VWAP) prior to the buyback, whichever is higher. Shareholders will be able to vote on whether the company is privatised.

Today’s announcement and presentation were quite brief and documentation will be sent to shareholders in the coming days, in advance of the Special Meeting expected to be held on 7 September 2018.

While I have not followed Updater closely, I have a low opinion of this decision as the company has essentially used ASX investors to legitimise and fund its start-up business without permitting these investors to share in the rewards.

It also raises the question of why Updater required an ASX listing to raise capital – if being private was so attractive, why didn’t the company raise capital from private investors in the first place?

There’s a certain irony to going private because of large private investor interest when a public listing was seemingly required to attract funding for the business in the first place.

While Updater did come public at $0.20, it has since raised substantial initial capital (somewhere around 25% of the company) at prices up to $1.25 and these shareholders will be forced to either hold an unlisted company with minimal input and transparency, or sell their shares essentially for what they paid.

Updater management states that the company’s ASX listing has been a success, however in this investor’s opinion, somebody who invested in a cash-burning start up like Updater at $1.25 should be hoping to receive more than a choice between receiving a return of 0% per annum or going private again.

We’ll have closer coverage of the proposal in the coming days once the information is sent out to shareholders.

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Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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