On October 16, 2019, the Division of Corporation Finance of the US Securities and Exchange Commission issued Staff Legal Bulletin No. 14K to provide additional guidance on shareholder proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934. This Legal Update describes this recent staff guidance and provides related practical considerations for companies that are, or may soon be, in the process of responding to shareholder proposals for the 2020 proxy season.

Read our Legal Update.

Thursday, October 24, 2019
3:00PM-6:00PM

Please join Mayer Brown at IFR’s US ECM Roundtable 2019. Now in its eighth year, the event will bring together a panel of the most senior ECM practitioners to assess the current state of the market, discuss the latest trends and developments and provide an outlook for the remainder of the year and beyond. Topics for discussion will include:

• State of the IPO market
• Transformative industries and companies
• Direct Listings as an alternative to IPO
• SPACs: Financial Engineering in bull market or durable funding vehicle?
• Market Outlook

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

The Securities and Exchange Commission announced a meeting of the Investor Advisory Committee on November 7, 2019.  The meeting will begin at 9:30 a.m. ET and is open to the public.  The meeting will be webcast live and archived on the committee’s website for later viewing.  The Committee will discuss and consider whether investors use environmental, social, and governance (ESG) data in investment/capital allocation decisions, and also the SEC’s Concept Release on Harmonization of Securities Offering Exemptions.

For more information on the agenda, please click here.

US IPO volume has declined by almost a quarter year-over-year, according to EY’s recent Global IPO trends report.  To date, $44.5 billion in proceeds have been raised in 127 IPOs, 23% less than at the end of Q3 2018. The third quarter of 2019 alone saw 39 IPOs in the US, which raised $11.9 billion, down 30% by number of deals.  Median deal size in Q3 2019 was $125 million, an 8% increase compared to Q3 2018, and the median post-IPO market cap for companies was $708 million according to the report.

For the last several years, healthcare and technology companies have dominated the IPO market, and this was no different in Q3 2019. Healthcare IPOs raised $3.9 billion across 13 IPOs. Among those companies, Smile Direct Club, a direct-to-consumer platform for orthodontic products, had the largest IPO in the third quarter, raising $1.3 billion in proceeds.  12 technology companies went public in the third quarter, raising $4.4 billion.  To date in 2019, there have been 53 healthcare IPOs, which have raised $11.0 billion in aggregate, and 39 tech IPOs, which have raised $22.6 billion in aggregate.

To date, 52% of companies that have gone public in 2019 have been financial sponsor-backed. This is an 80% increase year-over-year, consistent with our observations in previous blog posts.

Despite the market volatility experienced during the third quarter of 2019, the report indicates that the many large issuers that remain in the IPO pipeline may accelerate IPO activity in the final quarter of 2019 in part in order to avoid potential volatility associated with the election year.

On October 17, 2019, the Staff of the Division of Investment Management released FAQs meant to assist business development companies (“BDCs”) that have obtained the requisite approvals for lowering their asset coverage from 200% to 150% in satisfying the applicable repurchase offer obligation.  As required by Section 61(a) of the Investment Company Act of 1940, any BDC that is not listed on a national securities exchange must extend to each shareholder the opportunity to sell such shareholder’s securities to the BDC.  The Staff confirmed that the requirement is triggered as of the date of the approval (even if the BDC is subsequently listed on an exchange) and that the BDC may extend either (i) a single offer to repurchase all the securities held by all BDC shareholders, with the repurchase of 25% of the securities of such shareholders who accept the offer to be effectuated quarterly or (ii) four separate, quarterly offers to repurchase 25% of the securities held by all BDC shareholders, with the repurchase of the securities of such shareholders who accept each offer to be effectuated in the same quarter as the offer.  The price at which each repurchase is effectuated should be based on the current net asset value of the non-traded BDC at the time of that repurchase, rather than the net asset value at the time of the offer. The FAQs can be found here.

The Securities and Exchange Commission issued a statement (see link) that seeks innovative proposals that would improve the secondary market structure for exchange listed equity securities that trade in lower volumes, or “thinly traded securities.” Small cap companies are particularly adversely affected by limited liquidity. The Commission also shared a background paper produced by the Staff of the Division of Trading & Markets (background paper found here) that outlines prior studies and data relating to thinly traded securities and discusses the issues raised by the Treasury Department’s 2017 Capital Markets report. The background paper focuses on market structure issues, but does not address equity research, the lack of which affects small cap issuers and the liquidity of their stocks.

Medium-term note (“MTN”) programs are continuous offering programs that enable issuers to offer debt securities in an efficient and expedited manner. MTN programs have unique documentation, as opposed to benchmark underwritten offerings. Most MTN programs have the ability to offer debt securities with maturities of more than 270 days to up to 30 years.

Please join Partner David Bakst and Counsel Brad Berman on November 12, from 1:00-2:15 PM ET for an Intelligize webinar covering the following topics:

• Registered MTN programs and exempt MTN programs
• Diligence procedures, distributors and dealers
• Documentation
• DTC issues
• Staff Legal Bulletin No. 19 and opinions

For more information, or to register for the webinar, please click here.

CLE credit is pending.

The third quarter of 2019 saw a slight decrease in venture private capital funding levels according to PwC and CB Insights’ recently published MoneyTree report. Approximately $25.9 billion was raised across 1,304 deals, bringing total capital raised in 2019 to $83 billion.

Staying private longer. Companies have taken advantage of raising large amounts of private capital in recent years, increasing their valuations to unicorn status before going public or completing other types of exits.  In the third quarter of 2019, late-stage or mezzanine financings reached a median deal size of $100 million according to the report. Mega-rounds, which raise over $100 million in proceeds, have slightly decreased this past quarter to 55 from last quarter’s record of 67. In 2019, to date, $38.7 billion has been raised through venture mega-rounds.

Larger and later-stage financings are being undertaken by companies in a number of different sectors.  For example, late-stage deals contributed substantially to the almost $1.1 billion raised in 47 venture deals in the third quarter of 2019 by companies in the internet of things (“IoT”) sector. Startups in the fintech sector raised $3.8 billion, down from $5.2 billion in Q2. The largest rounds raised by these fintech companies were also later-stage mega-rounds.

The list of unicorn companies, valued at over $1 billion, has now reached 180 with an aggregate valuation of $621.2 billion, a record for venture-backed companies. There were 17 new unicorn “births” in the third quarter.

Exits. There were 22 IPOs completed by venture-backed companies in the third quarter of 2019, according to the report, bringing totals to 70 IPOs completed in 2019. M&A activity remained consistent with 163 M&A exits by venture-backed companies in the third quarter.  In comparing IPO exits to M&A exits from the past quarter, IPO exits take longer than M&A exits by almost one year with the median time from first funding to IPO being 7.5 years and 6.6 years from first funding to M&A exit.

This Lexis Practice Advisor® Market Trends article discusses the Securities and Exchange Commission’s pay ratio rulemaking, which was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and provides recent pay ratio disclosure examples.

On September 26, 2019, the US Securities and Exchange Commission extended the ability to test the waters to all issuers by adopting the highly anticipated new Rule 163B under the Securities Act of 1933 (the Securities Act). The new rule allows any issuer, or any person acting on the issuer’s behalf, to engage in test the waters communications with potential investors that are reasonably believed to be institutional accredited investors (IAIs) and qualified institutional buyers (QIBs), either prior to or following the date of filing of a registration statement relating to the offering, without violating the Securities Act’s “gun jumping” rules. Prior to Rule 163B, testing the waters was limited to emerging growth companies (EGCs) only.

Read our Legal Update.