Troon Ventures Reverses to Grenville, a Canadian Royalty Company

Read this article on the Financial Post website.

Shell companies come with their own unique history even if they all present the same opportunity: the chance to re-emerge thanks to the vending of a private company.

That process is at work with Troon Ventures, a company formed in 1935 and which was one half of a recent reverse transaction with Grenville Strategic Royalty Corp. With approvals all received, Grenville is expected to start trading on the TSX-Venture Exchange on Friday.

Troon, which had knocked back many other overtures, was attractive because it had more than $7-million in cash. For that asset, its shareholders (and 28.05 million shares were outstanding) received a partial Grenville share plus a partial Grenville share purchase warrant.

After the amalgamation, the “new” Grenville has about $7.2-million of available funds — down from $10.4-million as of the end of last October. (In some reverse transactions, the private company often does a round of financing to bolster its cash balances. National Bank Financial raised Grenville’s initial capital, a $3-million infusion, via a non-brokered private placement.)

As for the $3.2-million difference in cash balanced between the two time periods, the bulk is made up of $2.2-million Grenville has used to invest in four companies: Clear Blue Technologies, W Mode Inc., 4tell Solutions Canada and Bluedrop Performance Learning (where it partnered with Mike Wekerle’s Difference Capital.)

Over the next three-six months Grenville plans to spend another $4-million on a series of investments with a plan to invest up to $1.5-million per investment.

Grenville is one of the country’s few royalty companies. It was formed one year back by William Tharp and Steve Parry with the goal of buying royalties generated by growing industrial and technology businesses. It says it’s identified “a large and underserviced finance market for companies generating between $10- and $50-million in revenue,” but which are largely shut out of traditional debt and equity markets.

Given that royalty financing has been used in the natural resources sector for many decades — publicly-listed Franco-Nevada is the leader — why does Tharp believe it can be applied to industrial and technology companies?

One answer is that it’s already working given that Grenville has made five royalty investments. “There is no question that there’s a place within the spectrum that a royalty fits and that’s in the 1%-4% interest [of revenues] across a large landscape of companies. It has a broad application outside of film, pharma and resources,” argues Tharp, adding, “it’s very much of a Franco-Nevada type of structure we are putting in place and it’s scaleable.” As for a royalty rate of 1%-4%, Tharp said it’s “about right” because it leaves enough of the profits for the common shareholders.

Ideally, Grenville would like to invest and receive a lifetime royalty. If that’s not possible it will commit for a shorter period with a provision to allow the company to buy half after a period of time.

Tharp and Parry have skin in the game. Aside from their share ownership (which is locked up for five years) both Tharp and Perry will be paid $1 a year until Grenville has raised $10-million in equity or debt financing. After that they will receive a base salary of $200,000. “We need to have a critical mass in place before we get a working man’s salary,” said Tharp.