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Kim Dotcom Is Taking Mega Public with a Reverse Takeover

The cloud storage company will get listed on the New Zealand Stock Exchange via a characteristically alternative route.
Image: Flickr/Thierry Ehrman

Mega, the encrypted cloud storage company founded by “Entrepreneur - Innovator - Gamer - Artist - Fighter” Kim Dotcom, is going public, but it’s not taking the usual IPO route preferred by the startup bros of Silicon Valley. No, like it’s unconventional founder—and alleged “cyber fugitive”—Mega is going to get listed on the New Zealand Stock Exchange in a different way, via what’s called a reverse takeover.

The reverse takeover Mega is pulling is the corporate equivalent of something out of Alien—you know when the giant acid-spitting bug lays an egg in a human, only to have it horrifically hatch out of their chest hours later, killing the person in the process. So, in corporate land it more or less entails an existing corporate entity listed on the exchange (in this case TRS Investments Ltd.) buying Mega, whose shareholders will then own 99 percent of that company. Then TRS will change its name to Mega, and it's back to business as usual. Just like Alien, except with way more lawyers.

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A reverse takeover is an unconventional approach to taking a company public, so I went straight to the source and asked Mega CEO Stephen Hall why they chose to go public this way, versus the more common IPO route.

The New Zealand Stock Exchange. Image: Wikimedia Commons/PhillipC

Over a Skype video call, Hall told me that “on balance” reverse takeovers were much swifter and simpler processes than IPOs, and that, in a nutshell, was that. He went on to note that Mega wanted to move quickly because over the last several months the company has discovered there’s an enormous amount of demand from investors to purchase shares. And because Mega is an “early stage growth company,” Hall said, they wanted to get it into the public’s hands as quickly as possible.

“The investing interest has been lurking around for a long time,” he said, “As well as the commentary and interest since we’ve made our announcement has shown that it’s what people want.”

There are disadvantages to a reverse takeover versus an IPO. For one thing, there’s a greater risk of investor fraud—although in this case, Hall told me a single shareholder controls 73 percent of the TRS stock, so it doesn’t sound like anything unpredictable might happen (though the investor, Paul Choiselat, has his own with the Australian Securities and Investments Commission according to Business Insider).

Also, unlike how it’s often portrayed—as a cash grab for the founders—an IPO is actually supposed to be a way for companies to make a whole bunch of money so they can grow their business. That usually means expanding into new markets, or, say, buying another factory or other kind of super expensive tool to make a business all that much better. Dotcom and company won’t be getting the same kind of cash injection for their expansion plans, at least not yet.

That’s not to say it won’t be possible in the future, and better access to capital is one of the main reasons any company goes public in the first place—it's easier to raise money. As for Mega, Hall said they don’t have any plans to do so at the moment.

Dotcom himself sounded fairly pleased, and took to social media to brag about Mega’s apparent $179.5 million valuation (NZ$210), and what he evidently sees as a personal victory:

Indicted. Raided. On Bail. All assets frozen without trial. But we don't cry ourselves to sleep. We built #Mega from 0 into a $210m company.

— Kim Dotcom (@KimDotcom) March 24, 2014