As privately held companies choose to remain private longer and defer their initial public offerings (IPOs), these companies are increasingly reliant on raising capital in successive private placements. For companies in the life sciences sector, for instance, a late-stage private (or mezzanine) placement made to known and well-regarded life science investors may serve to validate the company’s technology. We have compiled data on late-stage private placements in the life sciences sector.
Read our Life Sciences Sector Survey of Late-Stage Private Placements for more information.
On July 19, 2016, the Advisory Committee on Small and Emerging Companies met to discuss the “accredited investor” definition, the Regulation A market, and the Commission’s recent proposal regarding the definition of “small reporting companies.” In introductory remarks, Chair White shared that the Commission has received 40 comment letters regarding the Commission’s study on the definition of “accredited investor” and hopes to receive further input from the investment community and the Advisory Committee. The Advisory Committee confirmed its proposed recommendations to the Commission Staff, which include expanding the definition of “accredited investor” to encompass those with professional accreditations (including Series 7, 65, 82 and Chartered Financial Analyst), prior investment experience and, those who pass an accredited investor examination, among other criteria. Commissioner Stein, in discussing the proposal for modifying the thresholds for SRCs, expressed particular concern about whether the benefits of scaled disclosure will outweigh the potential lower liquidity and high cost of capital that may result from such changes. By expanding the definition to include companies with up to a $250 million public float, Committee members stressed that companies, including those prospering through successful Regulation A+ offerings, will enjoy a lighter regulatory burden, which should make offerings more attractive. The SEC has requested comment on this proposal.
Chair White’s remarks are available at https://www.sec.gov/news/statement/opening-remarks-before-the-sec-advisory-committee-on-small-and-e.html
On July 1, 2016, the SEC approved NASDAQ’s proposed Rule 5250(b)(3), as amended by Amendment No. 2 filed on June 30, 2016 (the “Final Rule”), requiring NASDAQ-listed companies to publicly disclose third-party compensation arrangements for board members and board nominees, which are commonly referred to as “golden leash” arrangements. The Final Rule requires each NASDAQ-listed company to disclose, by the date the company files its definitive proxy statement for its next annual meeting, the material terms of all agreements and arrangements between any director or nominee, and any person or entity other than the company, relating to compensation or other payment related to that person’s candidacy or service as a director. The disclosure must be made at least annually until the earlier of the resignation of the director or one year following the termination of the agreement or arrangement, and can be made on a company’s website or in the definitive proxy or information statement (or, if the company does not file proxy or information statements, in its Form 10-K or Form 20-F). The Final Rule further provides that a company would not need to make disclosure for agreements and arrangements that (1) relate only to reimbursement of expenses in connection with candidacy as a director; (2) existed prior to the nominee’s candidacy (including as an employee of the other person or entity) and the nominee’s relationship with the third party has been publicly disclosed in a definitive proxy or information statement or annual report (such as in the director or nominee’s biography); or (3) have been disclosed under Item 5(b) of Schedule 14A of the Securities Exchange Act of 1934 or Item 5.02(d)(2) of Form 8-K in the current fiscal year. The Final Rule will be effective on August 1, 2016. The SEC Release approving the Final Rule is available at: https://www.sec.gov/rules/sro/nasdaq/2016/34-78223.pdf.
For additional information, read our client alert: http://www.mofo.com/~/media/Files/ClientAlert/2016/07/160725SECApprovesNasdaqRule.pdf
During the second quarter 2016, the IPO market improved with 34 IPOs raising approximately $5.5 billion, according to Renaissance Capital. While activity in the quarter was significantly higher than the first quarter (there were only eight IPOs in Q1), overall IPO levels are down. Healthcare continues to represent the most significant sector, accounting for 15 of the 34 IPOs during the quarter. There were a few tech company IPOs, as well as two REITs, a untility, and four consumer IPOs. Many of the quarter’s IPO issuers are venture-backed companies. Private equity backed IPOs have not returned to typical levels. The depressed levels are attributable to uncertainty regarding interest rates, disparities in valuations between the private and public markets, and Brexit concerns.
Congressman Himes (CT) and eight other members of Congress wrote to FINRA and to the Securities and Exchange Commission questioning the typical 7% gross spread in U.S. IPOs. The letter appears to have been prompted by a somewhat dated journal article that discusses fees in European IPOs. A link to the text of the letter is available here: https://himes.house.gov/press-release/himes-leads-letter-sec-finra-regarding-ipo-gross-spreads.
The agenda for the July 19 meeting of the SEC Advisory Committee on Small and Emerging Companies was recently announced. During the meeting, the Committee will consider the “Accredited Investor” definition recommendation as discussed during the May 18 meeting. There will also be an update and review of the first year of Regulation A+. The meeting will conclude with the SEC’s proposal to amend the “Smaller Reporting Company” definition.
The meeting will be live-streamed via the SEC website: https://www.sec.gov/info/smallbus/acsec.shtml
PLI’s Private Placements and Hybrid Securities Offerings 2016 conference on August 1-2, 2016, presents an expert faculty of leading practitioners and regulators as they discuss and analyze the changing regulatory framework and market for private offerings. The faculty will address the changes to private and exempt offerings brought about by the JOBS Act, including matchmaking platforms, “accredited investor” crowdfunding, offerings using general solicitation, Rule 144A offerings, and the practical implications of these changes for issuers, broker-dealers and investment advisers. In addition, they will address the basics of private placements, sales of restricted securities, Rule 144 and Section 4(a)(1-1/2) transactions and block trades. The panelists will discuss the considerations that have led many companies to remain private longer and defer IPOs, while creating liquidity opportunities for holders through private secondary trading markets. Panelists will address the basics of traditional private placements, PIPE transactions, and Rule 144A transactions, as well as recent developments affecting each of these capital raising alternatives.
Morrison & Foerster Partner Anna Pinedo will serve as chairperson for this event and will speak on the “Welcome and Introduction to Private Placements and Hybrid Financings” panel on Day One of the conference and on the “Welcome and Introduction to Conducting Hybrid Offerings” panel on Day Two. Morrison & Foerster Partner James Tanenbaum will speak on a panel entitled “Regulation A+” on Day One. The conference will be held at the PLI New York Center in New York, NY and is scheduled to begin at 9:00 a.m. EDT.
To register for this conference, or for more information, please click here.
The SEC Advisory Committee on Small and Emerging Companies will hold its next meeting on Tuesday, July 19, 2016 at 9:30 a.m. EDT. The meeting will be open to the public and available via webcast on the SEC’s website.
Today, the Commission proposed for comment amendments that are intended to eliminate redundant, overlapping, outdated or superseded disclosure requirements. The amendments, if adopted, would apply to SEC reporting companies, including foreign private issuers, as well as other entities regulated by the Commission, such as investment companies and broker-dealers. The comment period will remain open for 60 days following publication of the proposing release in the Federal Register.
The press release is available here: https://www.sec.gov/news/pressrelease/2016-141.html
The proposing release is available here: https://www.sec.gov/rules/proposed/2016/33-10110.pdf
Recently, the SEC’s Investor Advocate released a report regarding the Office’s areas of focus for fiscal year 2017. The report notes that the Office of the Investor Advocate intends to monitor developments related to the SEC’s Disclosure Effectiveness Initiative, as well as scaled disclosure initiatives. The report comments favorably on the SEC’s focus on the overuse of non-GAAP measures and notes that the Office will consider whether rulemaking is needed to provide additional clarification. The report notes that the “trend toward scaling presents a significant risk to investors,” but does not provide an analysis regarding the types of disclosures that would be significant to investors and would be unavailable as a result of any scaled disclosure accommodations. The full report is available here: https://www.sec.gov/advocate/reportspubs/annual-reports/sec-office-investor-advocate-report-on-objectives-fy2017.pdf.