Time to learn about reverse takeovers, kids!
A business trying to make money off mansions full of TikTok influencers has gone public on the stock market through an unusual deal. It involves a former Chinese health care company, and if that sounds confusing, well, we can explain. Social media entrepreneurs have rushed to find ways to make money from stars on popular platforms like TikTok. West of Hudson Group, for one, operates a network of content houses where many prominent young influencers live. Houses like these function as management companies, taking a percentage of revenue from the creators living in them. The influencers often don’t pay rent, but produce content for brands and promote products as a form of in-kind rent. Dozens of influencer houses have arrived in the Los Angeles area over the last year, and the companies that run them have been searching for sustainable business models. Going public, though, is a new strategy. West of Hudson was acquired this week by Tongji Healthcare Group, an entity in Las Vegas that was incorporated by a Chinese hospital in 2006 but had no assets at the end of 2019. The deal was a reverse takeover, in which a private company (in this case, West of Hudson) is acquired by an already-public one (Tongji Healthcare) but ends up in control. The deal closed on Wednesday. There were more maneuvers behind the scenes. Before the reverse merger, Tongji itself was acquired by the investors who control West of Hudson, a New Jersey real estate operator named Amir Ben-Yohanan and his business partners. What it all adds up to is that the combined company, which has applied to be renamed Clubhouse Media Group, is now listed on the so-called pink sheets market, where tiny public and often speculative companies trade. On Friday, Tongji’s stock closed at $2.30,38 percent below its August high. Extremely low priced stocks — known as penny stocks — are extremely volatile. While sophisticated investors may dismiss such a risky investment, inexperienced investors, many of whom are active on online trading platforms like Robinhood, have an appetite for them, and for companies in the thick of social media trends. Influencer content houses often revolve around drama. Many last only a few months before internal conflict or a dispute between talent and management leads to their disintegration.
