Irvine-based Boustead Securities LLC is having quite the month.
The investment banking firm was the sole underwriter of a hot Chinese medicinal herb company that was the first to go public this year on an American exchange.
After shares of China SXT Pharmaceuticals Inc. (NASDAQ: SXTC) began trading on Jan. 4, they rose at one point to a high of $23.35, a five-fold jump from its initial public offering price of $4.
Since then, the excitement has worn off as the shares last week traded around $4.76 and a $107 million market cap on a daily average trading volume of 179,000. That’s still a 19% jump.
“I’d love to say that we are geniuses,” Boustead Securities Managing Director Daniel McClory said about the price increase.
“Who really knows? It’s not an exact science. It might be a reflection of demand for IPOs, which [are] being slowed by the SEC being closed due to the government shutdown.”
Another Boustead client, Avalon GloboCare Corp. (Nasdaq: AVCO), a Freehold, N.J.-based developer of cell-based technologies, rang the Nasdaq stock market closing bell earlier this month. The company’s shares have risen 24% to $3.35 and a $249 million market cap since Boustead helped uplift it from an over-the-counter exchange to the Nasdaq on Nov. 5.
Last year, Boustead did four initial public offerings and two upliftings.
The company doesn’t plan on resting the remainder of 2019.
“This year we will probably do 20 IPOs,” McClory said. “It is [an] impressive amount of action.”
Boustead itself may go public this year, he said.
Serious Name
The company was founded in 2006 under the name Monarch Bay Securities LLC by Keith Moore, who served in a number of executive roles at Activision Inc., including president and chief financial officer of the gaming and entertainment company in the 1990s.
In 2016, it bought the name Boustead, a London-based merchant bank that traces its origins to a company began by Edward Boustead in Singapore in 1828. Two other unrelated spinoffs also use the name: Boustead Holdings Berhad, a Malaysia-based conglomerate with 16,000 employees, and Boustead Singapore Ltd. an engineering firm with about $300 million market cap on the Singapore Stock Exchange.
“It’s a serious name in Asia, where it translates to something like trusted merchant,” said McClory, whose company isn’t connected with the two Asian firms.
The company, majority owned by Moore and McClory, has 40 employees, including 12 at its Irvine office.
Boustead specializes in raising between $10 million and $50 million, an amount that larger investment bankers like Goldman Sachs typically don’t bother with, McClory said.
Before the name change, Moore said he raised $100 million for companies that have grown collective revenue to $600 million.
It’s raised about $14 million as the lead underwriter for Adomani Inc. (Nasdaq: ADOM), which converts school buses to zero-emission electric and hybrid vehicles. The company, initially based in Newport Beach before moving to Corona, was the first equity crowdfunded company to list on the Nasdaq.
After its 2017 IPO, Adomani soared to a market cap above $1 billion. Since then, the shares have fallen 94% to about 30 cents.
Boustead Securities is currently underwriting a fund expected to raise between $7.5 million and $15 million for Houston-based Soliton Inc., a “pre-revenue” medical device company “on the verge of completely changing the tattoo removal game” with a patented acoustic device that it says clinical trials have shown can remove tattoos in two or three sessions.
The technology is licensed from the University of Texas M.D. Anderson Cancer Center.
Soliton hasn’t reported any revenue in a 30-month period ended last June. During that time, its losses reached $18 million, according to a regulatory filing.
The Soliton board of directors includes Brad Hauser, a vice president of research and development at the CoolSculpting unit at Allergan PLC.
China Connection
Boustead is focused on raising money for Chinese companies on U.S. exchanges. Clients include Shineco Inc., (Nasdaq: TYHT), a Beijing-based producer of traditional Chinese Herbal medicines, which has fallen about 87% since its 2016 IPO when it was priced at $4.50, and ZK International Group Co., (Nasdaq: ZKIN), a Wenzhou maker of stainless steel products whose value has dropped about two thirds since its IPO.
China Internet Nationwide Financial Services Inc. (Nasdaq: CIFS) went public at $10 a share in July 2017 and rose to more than $60 a share by November. It’s now trading at about $1.
When asked about the share declines, McClory said it’s hard to predict where these shares will go and that most of the companies held up well in their first three months on the Nasdaq, which is the typical barometer for his investors.
“Our investors don’t buy and hold for three to five years,” he said.
Reverse Mergers
McClory, who said he often spends one week a month in China, has a long history with moving Chinese companies onto U.S. markets.
During the 2000s, he brought about 30 Chinese companies to the U.S. through reverse mergers, a controversial technique that makes it easier for smaller-sized and under-the-radar businesses to become a publicly traded company, but is less trusted by investors.
About 400 Chinese companies became public in the 2000s via reverse mergers, with many mired in controversy over their products, management and accounting.
The SEC issued many warnings about them. McClory said he later discovered one of his Chinese companies was fraudulent and suspected a second one as well.
“This time around, Chinese companies are skipping the reverse mergers to go through the process of being accepted on Nasdaq,” McClory said. “Why open off Broadway when you can be on Broadway?”
Such companies are facing increasing scrutiny. McClory said his firm also hires independent analysts to vet the potential company’s products and management. Additional vetting includes not only Nasdaq but also the SEC and the Financial Industry Regulatory Authority Inc., a private self- regulating agency for financial brokers known as FINRA.
Last year, 33 China-based companies raised more than $9 billion through listings on Nasdaq or the New York Stock Exchange, up from 17 in 2017 and the highest since 39 listings in 2010, according to the Financial Times.
“Nasdaq has been extremely vigilant to make sure the right companies” are listed on the exchange, McClory said.
Chinese Herbs
McClory came across China SXT Pharmaceuticals through a referral from a legal firm.
According to a prospectus, the Taizhou, China-based company reported net income of $1.19 million on sales of $7 million for fiscal 2018. Sales climbed 44% from 2017.
The company issued shares at $4 each to raise about $10.2 million in gross proceeds. It plans to use the proceeds to expand its manufacturing facility, hire additional employees and research new applications.
The hunger for Chinese IPOs became obvious a few days after China SXT’s offering when a non-Boustead company, MMTec Inc. (Nasdaq: MTC) also went public, raising $7 million. The Beijing-based supplier of services for Chinese hedge funds more than doubled its IPO price on its first day.
“There’s a lot of support for IPOs from China,” McClory said. n
