KARACHI: A subsidiary of IT firm Supernet Ltd has acquired majority shares in Hallmark Company Ltd as part of a reverse merger to attain the listing status.

The reverse merger allows a private entity — Super Infrastructure Solutions Ltd in this case — to become a publicly traded firm simply by purchasing controlling shares in a listed entity. In other words, the private firm goes public without going through the tedious and costly process of an initial public offering (IPO).

Super Infrastructure Solutions, which is mainly involved in the business of solar panels, initially aimed to acquire at least 51 per cent shareholding in Hallmark Company — originally a general insurance provider that surrendered its licence to focus on IT business around 2017.

Hallmark Company ran “limited operations” when Super Infrastructure Solutions set its eyes on acquiring it, according to Supernet Ltd Company Secretary Waseem Ahmad. Supernet Ltd owns 99.98pc shares in Super Infrastructure Solutions.

The acquirers intend to “carve out” even the nominal operations that Hallmark Company may have at the time of the transaction. “We’re only interested in obtaining the listing status of the target company,” Mr Ahmad told Dawn in a recent interview.

After conducting due diligence of Hallmark Company, the acquirer made a share purchase offer to its sponsors, which was followed by a public offer for half of the remaining shares controlled by minority shareholders. The acquirer purchased 314,220 shares or 62.8pc shareholding through a share purchase agreement with the sponsors at Rs47.74 apiece. In other words, the acquirer executed the reverse merger at roughly Rs15 million.

However, none of the 358 minority shareholders tendered their shares in the subsequent public offer for up to 18.6pc shareholding.

Many reverse mergers have taken place in the recent past as private companies find it more feasible to acquire dormant listed companies than going public in the conventional way, which involves hefty listing and regulatory fees. For example, “estimated expenses of the issue” in an IPO recently held on the Pakistan Stock Exchange amounted to over Rs31m, more than double the Hallmark transaction value.

Itself a subsidiary of Telecard Ltd, Supernet Ltd went public last year and raised Rs475m. It sold 18.81pc of the total post-listing shareholding at Rs22.50 per share.

The transaction constituted the first-ever listing of a technology company on the PSX’s Growth Enterprise Market (GEM) counter, which is reserved for riskier entities seeking public funds.

However, Supernet Ltd is currently in the middle of a migration to the PSX’s main board owing to little trading that takes place every day on the GEM counter for myriad reasons.

Published in Dawn, August 16th, 2023