In a recent article, Edward Knight, the global chief legal and policy officer at Nasdaq Inc., offered his own views on reforms that would contribute to greater resiliency for the US capital markets.  Knight suggests that greater retail participation in the stock markets should be encouraged.  He looks to Sweden’s investment savings accounts, which provide for investments to be made in various securities, with tax liability assessed based on the value of the account, as a means of encouraging more active participation.  Knight notes that the introduction of investment savings accounts in Sweden can be shown to have some correlation with an increase in IPO activity.  While an interesting idea, it is not clear that we would see more companies choose to go public (rather than remain private and finance at attractive valuations or sell at attractive valuations) if there were a higher retail participation rate or that direct retail participation rather than participation through funds would make a difference.  Knight also suggests that Congress and the Securities and Exchange Commission address market structure issues that may impair liquidity for smaller companies.  He also recommends more transparency relating to reporting of ownership positions.  Knight advocates regulations that would mandate that holders of short positions be subject to reporting.  Knight also calls for a merger of the Securities and Exchange Commission and the Commodity Futures Trading Commission into a single agency in order to eliminate regulatory overlaps and redundancies.  A number of these reforms have been advanced through proposed bills in prior sessions of Congress.  Just this week, the US Senate advanced a handful of capital markets related measures for further consideration.  It will be interesting to see whether some of these suggestions find their way into a JOBS Act 3.0.

Global REIT IPOs decreased dramatically – down 47 percent – from 49 REIT IPOs in 2017 to 26 REIT IPOs in 2018. This decrease reflects a difficult capital-raising market, with pressures from rising interest rates and a softening real estate market in the United States, and signals changes in future REIT fundraising activities.

Download the REIT IPO Market Update from Bloomberg Law® to understand recent changes in the REIT IPO landscape, including:

  • Shifts in the way REITs opt to raise capital – leaning more on late-stage private funding vs. public markets;
  • Factors contributing to the substantial increase in the value of REIT M&A transactions in 2018 – with the total value of REIT transactions at $81 billion in 2018 compared to $67 billion in 2017;
  • Analysis of REIT sector performance, including warehouse/industrial, shopping center, health care, mortgage, and non-listed REITs; and
  • Implications of the impact of the new tax law on REITs and a look at the growth of international REITs.

Last week, Intelligize published The Unicorn IPO Report, which analyzes IPOs from 2016 through 2018.  In 2016, the report notes that the AppDynamics IPO was days away from completion prior to its acquisition by Cisco for $3.7 billion.  There were 13 unicorn IPOs in 2017 and 20 in 2018.  Despite the increase in number of deals in 2018, the size of the Snap IPO ($3.4 billion) in 2017 skewed the average offering size for 2017 IPOs.

 

From 2016 through 2018, the ten largest unicorn IPOs were as follows:  Snap Inc. ($3.4 billion), Dropbox Inc. ($756 million), DocuSign Inc. ($629.3 million), Moderna Inc. ($604.3 million), Switch Inc. ($531.3 million), Allogene Therapeutics Inc. ($324 million), Pluralsight Inc. ($310.5 million), Blue Apron Holdings Inc. ($300 million), Bloom Energy Corp. ($270 million), and Anaplan Inc. ($263.5 million). The report provides statistics on the underwriting fees for unicorn IPOs; a 7% fee remained the norm for all but seven offerings. This is interesting given that an SEC Commissioner’s comments on underwriting fees has raised concern and interest among legislators that smaller and medium-sized companies were paying higher fees.

About 30% of the unicorn IPO issuers had multi-class share structures.

The survey also reports on governance and other trends.

A recent research report published by Goldman Sachs reviews private market value creation compared to public market creation.  Echoing the trends noted in other publications, the report notes the increasingly important role of venture capital as an asset class.  The growth in venture funding has contributed to companies remaining private longer.  The report notes that among the top twenty unicorn companies 11 funding rounds on average were undertaken.  In recent years, the number of mega-rounds (over $100 million raised) has grown steadily. Historically, from 1995 to 2017, value creation in the public markets has been greater than in the private markets. In 2017 to 2018, the public markets underperformed the private markets.  IPO value (change in aggregate market capitalization) declined 8% on average versus the S&P 500.  Private Market gains for companies going public over the last five years was 33% higher than for companies going public on average for the last 25 years. Based on the amount of private capital available for investment, this trend shows no signs of abating.

CBInsights recently held a webcast that offered a recap of 2018 events affecting the fintech sector. Global fintech investment reached a record at $39 billion in 2018. Venture-backed fintech deals declined in the fourth quarter of 2018 but remain high compared to historic levels. Early stage fintech deal share declined compared to 2017. There are now 39 fintech unicorns globally, valued in aggregate $147.37 billion. There were 16 fintech companies that joined the unicorn ranks in 2018. There were 52 fintech financing rounds that each raised in excess of $100 million. Only three fintech unicorns undertook IPOs in 2018. CBInsights identified ten fintech trends to watch in 2019. Outside of the United States, fintech startups are applying for bank charters. Fintech companies are continuing to strengthen their regulatory compliance efforts as regulatory scrutiny has increased. Fintech startups are providing access to new asset classes and fintech companies are becoming more entrenched in the real estate and mortgage markets. CBInsights predicts that mega-rounds will delay IPOs.

Tuesday, February 26, 2019
Registration: 8:30a.m. – 9:00 a.m.
Program: 9:00a.m. – 10:00 a.m.

Location
Mayer Brown LLP
1221 Avenue of the Americas,
New York, NY 10020

Successful privately held companies considering their liquidity opportunities or eyeing an IPO often turn to late stage private placements. Late stage private placements with institutional investors, cross-over investors and strategic investors raise a number of considerations distinct from those arising in earlier stage and venture financing transactions. Privately held companies also have become more comfortable sponsoring liquidity programs for early investors, employees and consultants, as well as allowing these holders to sell to cross-over investors in late stage investment rounds.

During our session, we will discuss:

  • Timing and process for late stage private placements;
  • Terms of late stage private placements;
  • Principal concerns for cross-over funds;
  • Diligence, projections and information sharing;
  • IPO and acquisition ratchets;
  • Participation by strategic investors;
  • Issuers and third-party tender offerings; and
  • Private secondary market opportunities

For more information or to register, please click here.

CB Insights recently published its seventh annual Tech IPO Pipeline Report.  The report notes that in 2013, the median time between first funding and IPO for U.S. VC-backed tech companies was 6.9 years compared to 10.1 years for tech companies that went public in 2018.  As we have noted in previous posts, tech companies continue to raise more significant amounts of funding prior to undertaking their IPOs.  In 2018, tech companies raised, on average, $239 million before undertaking their IPOs, which is almost 1.4x the amount raised in 2017, and over 3.7x as much as 2012 figures.

The number of new private tech unicorns has outpaced the number of tech IPOs in 2018.  After 2014, tech IPOs declined significantly and have remained at those depressed levels, with only 19 tech IPOs in 2018.  By contrast, there were 45 tech companies that became unicorns in 2018.  The mega-round financing trend, wherein companies raise over $100 million per round, was also prevalent in the tech-sector, with almost 120 mega-round financings completed in 2018.

Tech-focused private equity firms continue to acquire majority stakes in tech companies that are nearing liquidity opportunities, whether IPOs or M&A exits.  However, M&A exits continue to replace IPOs.  The report cites as examples Qualtric, Adaptive Insights, and AppNexus.

A comfort letter is a letter delivered by an issuer’s independent accountants to the underwriters or initial purchasers that provides certain assurances with respect to financial information included in a registration statement, prospectus or offering memorandum used for a securities offering. Underwriting agreements and purchase agreements typically require the delivery of one or more comfort letters, in form and substance reasonably acceptable to the underwriters, initial purchasers or their counsel, as a condition to closing the securities offering. Comfort letters assist underwriters in establishing a due diligence defense under Section 11 of the Securities Act and in creating a record of their reasonable investigation of the issuer and its financial condition to ensure there are no material misstatements or omissions in the offering document.

In this Lexis Practice Advisor® Top 10 Practice Tips, we provide 10 practice points that can help you, as counsel to underwriters or initial purchasers, skillfully navigate the task of reviewing and negotiating comfort letters.

In connection with securities offerings, the underwriters or placement agents generally negotiate a lock-up agreement with the issuer, as well as with the issuer’s directors, officers, and, in the case of initial public offerings, control persons. The lock-up agreements provide the underwriters or placement agents with some assurance that new issuer securities will not be sold immediately following the proposed offering the sale of which might disrupt the trading market for the offered securities.

In this Lexis Practice Advisor® Top 10 Practice Tips, we provide 10 practice points to consider in drafting and negotiating lock-up agreements.

Thursday, December 13, 2018
1:00 p.m. – 2:00 p.m. EDT

Despite market volatility, 2018 has proven to be a strong year for IPOs. Under the right circumstances, an Up-C structure implemented in connection with an IPO has the potential to deliver significant economic and tax benefits to financial sponsors and other selling shareholders.

During this session, Partners Anna T. Pinedo and Remmelt Reigersman will explain:

  • When an “Up-C” structure might be appropriate for an IPO candidate
  • Documenting the arrangements
  • Addressing the tax receivable agreement
  • The benefits to various stakeholders
  • Life as a public company with an up-C structure and how it impacts financial and SEC reporting
  • Undertaking acquisitions using an up-C structure
  • Unwinding an up-C structure

After this session, attendees will:

  • Understand the components of an up-C structure and when to implement
  • Counsel clients on the benefits of an up-C structure
  • Understand the economic and tax benefits to financial sponsors

Intelligize will provide CLE credit. For more information, or to register for this session, please visit the event website.