Month: September 2019

If making as much profit as legally possible is not the primary objective of a publicly-traded company, then investing in such companies will be less attractive — which makes owning revenue royalties more attractive

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Revenue Royalty investors are focused on the growth of defined revenues, not reported profitability. Revenues grow when company products and services satisfy customers.

Therefore, some investors, believing in the future growth of a company’s revenues, could be interested in buying a revenue royalty from the company — a percentage of the company’s defined revenues — rather than a share of ownership.

It is possible for companies to have both investors in the ownership of the company, and also investors in the revenue growth of the company.

The equity investors would effectively be choosing to participate in the benefit being provided to the company’s stakeholders, including the local and general economies, as well as from dividends based on reported corporate profits, and on possible increases in the market valuation of the equity.

Royalty investors receive or may be credited with an agreed percentage of revenues, creating an expense for the company, but without incurring equity dilution.

Indeed, for sophisticated investors, if units of the company’s royalties were publicly traded, there could be an arbitrage between the market price for the equities, and the market price for units of revenue royalty. The public trading of revenue royalty units could be used by investors to both speculate and protect their positions. By offering such choices to investors, the total attractiveness of investing in the company could increase.

Royalty issuing companies would have the benefit of raising non-equity dilutive capital, increasing their size, competitiveness and profitability, and investors in those royalties could profit from being correct in their assessment of the company’s upward trend of future revenues.

We are able to assist companies which are considering the use of royalties for their capital development.

 

Arthur Lipper, Chairman
British Far East Holdings Ltd.
chairman@REXRoyalties.com
858 793 7100

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