2018 has seen an increase in private companies accessing the private markets through private company liquidity programs.  Nasdaq Private Markets recently released a report showing an increase of 74% in total number of private liquidity programs between 1H2017 and 1H2018.  The 33 programs completed in the first half of 2018 have a total program volume of $10 billion.  This is a 37% increase in total program volume over the first half of 2017.  Twenty of these private liquidity programs were structured as third-party tender offers, while the remaining 13 were share buybacks.

Breaking down the programs by number of eligible shareholders shows that 33% of programs are completed by companies with less than 100 eligible shareholders, 33% by companies with 100-250 eligible shareholders, 24% by companies with 250-500 eligible shareholders, and 10% by companies with over 500 eligible shareholders.  Additionally, 50% of companies completing private liquidity programs are valued at over $1 billion.  Nasdaq’s report leads us to conclude that a broader range of companies have turned to private liquidity programs than in recent years.

Nasdaq’s report is available here.

 

Fintech companies continue the global trend of companies choosing to remain private longer and raising large amounts of capital through private channels.  A recent CB Insights report covered the financing trends of fintech companies for the first half of 2018.  As of the date of the report, there were 29 fintech unicorns valued at $84.4 billion globally.  The second quarter of 2018 valued five fintech companies at unicorn status (over $1 billion).  Three of these new unicorns are based in the United States.

U.S. fintech companies raised $3.2 billion in new capital over 146 deals in the second quarter of 2018, bringing the total number of deals for the first half of the year to 303, raising approximately $5.3 billion.  Compared to Q2 2017, last quarter’s total capital raised increased over 52%.  Not surprisingly, later-stage capital raises made up over 83% of deals in the second quarter, raising approximately $2.7 billion over 74 deals.

There was only one IPO exit by a fintech unicorn in the U.S. in the second quarter of 2018, which raised $874 million.  Globally, M&A exits accounted for approximately 85% of fintech company exits, with 39 M&A transactions, while there were only seven fintech IPOs completed in the first half of 2018.

For more information, read CB Insights’ Global Fintech Report Q2 2018.

Large, late stage private capital raises for privately held companies continue to be the preferred method of financing growth for many new companies, particularly those in the tech sector.  A recent analysis conducted by data provider CB Insights examined what the industry calls “mega-deals” or “private-IPOs,” which are private placements raising over $100 million in proceeds.  These deals, which have a median deal size of $160 million, have largely contributed to the emergence of unicorns, or private companies valued at over $1 billion.  This trend in private capital raising has become more prevalent since the enactment of the JOBS Act in 2012, which has made it easier for companies to remain private longer.

A closer look at the data compiled by CB Insights shows that, over the last five years in the United States, over 90% of capital raises for private companies were later stage or mezzanine investments.  These deals have raised over $300 billion in capital for companies, with $151.7 billion of these deals fitting into the rubric of “private-IPOs.”  Based on the CB Insights analysis, it would appear that transaction volumes for 2018 are on pass to surpass those in 2017.  While legislators contemplate the capital formation-focused package of legislation that has been dubbed “JOBS Act 3.0,” and consider measures to make going public more compelling, it’s clear that there is no shortage of private capital to finance promising companies.

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

With companies remaining private longer, their stockholder base often becomes more widely dispersed. More and more privately held companies are facing interesting challenges in communicating effectively with various stakeholders, without violating securities laws. During this session, Partner Anna Pinedo will address the following:

  • Private company information rights;
  • Rule 701 disclosures for employees;
  • Information requirements in connection with stockholder liquidity programs;
  • Sharing company information in connection with financing rounds;
  • Communicating with investment professionals;
  • Communications and social media policies for private companies; and
  • Blackout/insider trading policies for private companies.

For more information, or to register for this session, please visit the event website.

On July 18, 2018, the Securities and Exchange Commission issued a concept release soliciting public comment on potential ways to modernize compensatory offerings and sales of securities, consistent with investor protection. Specifically, the concept release requests comment on aspects of Rule 701 under the Securities Act of 1933 and on Form S-8. This Legal Update highlights key questions raised by the concept release and practical considerations for public and private companies.

On June 12, 2018, Partner Anna Pinedo participated in a panel discussion titled “Hello Private Capital” at the Wall Street Journal’s CFO Network 2018 Annual Meeting in Washington D.C., which focused on the trend of companies toward deferring their IPOs and remaining private, the public policy concerns arising as a result, the effect on the IPO market, the availability of investment opportunities for retail investors, new legal challenges for large private companies, and valuation considerations.

In his most recent testimony in Congress, the Securities and Exchange Commission Chair once again focused on retail investors.  Chair Clayton cited a number of statistics regarding the level of retail participation in the capital markets.  He noted that at least 51 percent of U.S. households are invested directly or indirectly in the U.S. capital markets.  Chair Clayton noted that the recently released strategic plan has as a cornerstone a focus on retail investors.  Addressing a frequent theme, Chair Clayton commented on the decline in the number of U.S. public companies.  He also noted the impediments to investment in private companies by “Main Street investors,” which impediments limit Main Street investor participation in the growth of many successful private companies.

Addressing the Commission’s plans, Chair Clayton noted that the Commission will consider final amendments to the smaller reporting company definition and the thresholds that trigger Sarbanes-Oxley Section 404(b) auditor attestation requirements.  He mentioned that the Commission also will focus on the possible expansion of testing the waters to companies other than emerging growth companies, the disclosure effectiveness initiative, modernization of various Industry Guides, and amendments to the financial information requirements for guarantors and acquired businesses.  Chair Clayton also discussed the rulemaking required of the Commission to amend Rule 701 and Regulation A.  He commented on the success of Regulation A and generally solicited offerings made under Rule 506(c) and noted that the Division of Corporation Finance is considering ways to harmonize and streamline the exempt offering rules in order to enhance their clarity and ease of use.

Chair Clayton also addressed the rulemaking mandates contained in the Small Business Credit Availability Act relating to the securities registration and communication requirements for BDCs and in the Economic Growth, Regulatory Relief, and Consumer Protection Act relating to the securities registration and communication requirements for closed-end funds.  Finally, he noted the Commission’s remaining Dodd-Frank Act rulemaking mandates relating to executive compensation rules and the specialized disclosure rules.  The full text of the prepared testimony may be found here.