Morrison & Foerster’s Marty Dunn will be speaking on a panel as part of PLI’s Global Capital Markets & the U.S. Securities Laws 2018 program held in New York, NY on April 18, 2018. His panel will focus on hot topics in global capital markets including: disclosure developments; latest developments with Rule 144A and Regulation S offerings; impact of the JOBS Act; and global offering techniques. PLI will provide CLE credit. Please visit the PLI event page for more information.
Citibank’s recently released year-end report on depositary receipts (DR) reported that in 2017, $15.6 billion of DR capital was raised across 65 deals, which was a 126% year-over-year change in total capital raised versus 2016 and a 91% year-over-year change in number of capital raisings. The European, Middle East and Africa region saw a total of 28 deals, raising $4.4 billion; the Asia-Pacific region raised $7.0 billion across 29 deals; and the Latin America region raised $4.2 billion across 8 deals.
The report also notes that DR IPOs raised $9.4 billion in 2017, which was a 145% change from 2016. 24 issuers were able to take advantage of JOBS Act accommodations to complete their IPOs. There was also $6.2 billion of DR follow-on activity in 2017, which was a 101% change from 2016. $12.8 billion was raised in American depositary receipts (ADR) and $2.8 billion was raised in global depositary receipts (GDR).
The energy, software and services and the financial services sectors were the top three sectors for DR IPOs in 2017 raising $1.57 billion, $1.54 billion and $1.48 billion respectively. For follow-on offerings, the top three sectors included financial services, raising $1.87 billion, pharmaceuticals/biotech, raising $1.43 billion, and software and services, raising $681 million.
For additional 2017 DR trends, see Citi’s annual report: https://depositaryreceipts.citi.com/adr/common/file.aspx?idf=4354
JOBS Act and Information Uncertainty
A recent paper titled “The JOBS Act and Information Uncertainty in IPO Firms,” published by Mary E. Barth, Wayne R. Landsman, and Daniel J. Taylor, has garnered quite a bit of attention. The paper examines the extent to which omission of certain information by emerging growth companies (EGCs) can be tied to IPO underpricing. According to the paper, EGCs that present compensation information for fewer than five top executives and present fewer than three years of audited financial statements are associated with higher levels of underpricing. It is difficult to conclude whether there really is a correlation since, in our experience, many of the EGCs that choose to rely on the accommodations and omit this information are concentrated in particular sectors and those are usually associated with underpricing. Similarly, in our experience, many companies in those sectors have concentrated ownership and existing investors participating in the IPOs. The paper also concludes that EGCs have higher levels of institutional ownership than non-EGCs. This may not be all that surprising given trends in private capital raising over the last eight to ten years. The authors suggest that this information should be considered in connection with additional regulatory reforms that might reduce disclosure burdens. Without more detail comparing the sectors of the companies that are or are not EGCs, and of the EGCs that choose to omit disclosures, and the pricing issues specific to IPOs of companies in such sectors, as well as of companies by age or maturity, it would seem difficult to draw any conclusions.
HR 1585, sponsored by Rep. Schweikart, titled The Fair Investment Opportunities for Professional Experts Act, passed the House by a voice vote. This bill would amend the “accredited investor” definition to add persons, regardless of the net worth/net income test, holding certain financial services licenses as well as persons determined by the SEC to be financially sophisticated by virtue of education or job experience.
The House also passed the Meeks bill, HR 3903, Encouraging Public Offerings Act, about which we previously blogged, which would extend JOBS Act IPO-related accommodations, including the ability to test the waters, to all issuers. HR 3903 passed 419-0.
Practising Law Institute’s Exempt and Hybrid Securities Offerings is the first practical, accessible resource to provide you with comprehensive legal, regulatory, and procedural guidance regarding these increasingly popular offering methodologies.
Authored by Morrison & Foerster Partners Anna Pinedo and James Tanenbaum, the third edition of Exempt and Hybrid Securities Offerings gives you a useful understanding of the applicable regulations and legal framework for these transactions, as well as the implications of these regulations for structuring transactions.
The treatise provides a detailed analysis of the regulations and guidance affecting exempt and hybrid securities offerings, as well as offers market context and practical structuring advice. Packed with checklists, transactional timelines, SEC guidance, and a wealth of labor-saving sample documents, Exempt and Hybrid Securities Offerings offers the relative advantages and drawbacks of the most commonly used forms of exempt and hybrid offerings. It clearly explains:
- conducting venture private placements;
- traditional and structured PIPE transactions;
- institutional (debt) private placements;
- Rule 144A offerings;
- Regulation S offerings;
- Regulation A offerings and crowdfunding;
- shelf takedowns;
- registered direct and ATM offerings;
- confidentially marketed public offerings; and
- continuous issuance programs, including MTN and CP programs.
This comprehensive three-volume treatise, with useful forms, has been updated to reflect changes brought about by the Dodd-Frank Act, the JOBS Act, the FAST Act, and other recent regulatory changes.
For more information, please click here.
On October 2, 2017, Congressmen Ted Budd (R-NC) and Gregory Meeks (D-NY) introduced a bipartisan bill, H.R. 3903, in the U.S. House of Representatives. The bill proposes amendments to the Securities Act of 1933, as amended, to increase initial public offering (“IPO”) and follow-on activity. The proposed legislation extends three JOBS Act provisions currently available to emerging growth companies to all issuers: (1) submission of a draft registration statement for confidential nonpublic review by the SEC prior to the public filing of the IPO registration statement; (2) within the one-year period following an IPO, confidential submission of a draft registration statement for an offering; and (3) the ability to test-the-waters with institutional investors. The SEC’s Division of Corporation Finance’s policy changes earlier in the year already have addressed confidential submissions for IPOs as well as follow-on offerings undertaken within twelve months of an IPO; however, the bill would ostensibly extend the confidentiality provisions contained in Securities Act Section 6(e)(2) for these draft registration statements. Currently, those confidentiality provisions are available only for EGCs and confidential submissions made under the new SEC policy must be the subject of a Rule 83 confidential treatment request. Also, the bill would address the ability to test the waters, which was not addressed by the Division of Corporation Finance.
The text of the bill is available here.
Recently, the Financial Executives Research Foundation (FERF) published a white paper titled, “Growing Past Emerging Growth: Five Years After the JOBS Act,” which highlights areas of focus for emerging growth companies (EGCs) that took advantage of the 2012 JOBS Act and now are losing their EGC status. In particular, the white paper notes the importance of developing a transition plan. Companies ceasing to be EGCs will be required to prepare full compensation disclosures. The more significant hurdle for most companies is addressing Sarbanes-Oxley Section 404 auditor attestation requirements. The white paper provides helpful suggestions on marshalling the requisite resources to prepare for compliance.
Friday, September 15, 2017
3:00 p.m. – 6:00 p.m. EDT
Thomson Reuters Building
3 Times Square, 30th Floor
New York, NY 10036
Morrison & Foerster Sponsorship
Now in its sixth year, IFR’s 2017 US ECM Roundtable will bring together a panel of the most senior ECM practitioners to discuss the very latest market trends and developments.
The format of the event will be a 90-minute discussion – including a 15-minute Q&A session – followed by networking drinks. The session is free to attend but you must be registered. Partner Anna Pinedo will participate on the panel.
Topics will include:
- Overall state of the market;
- Regulatory developments/JOBS Act;
- Risk/block trades and accelerated bookbuilds; and
- SPACs – Flavor of the day or enduring source of funding?
For more information, or to register, please click here.
The IPO Task Force seems to have come together again. The Center for Capital Markets released a letter dated August 22, 2017 addressed to the Treasury Secretary setting out a few suggestions, which are quite similar to those that had been advanced a few years ago, and that have as their objective increasing the number of public companies. The suggestions include:
- Extending the Title I JOBS Act on-ramp accommodations from five to ten years for EGCs and reviewing the EGC definition;
- Making the JOBS Act accommodations available to all issuers, not just EGCs;
- Modernizing the Sarbanes-Oxley internal control over financial reporting requirements;
- Modernizing securities disclosure requirements;
- Addressing the rules related to shareholder proposals and regulating proxy advisory firms;
- Promoting equity market structure changes that enhance liquidity for EGC and small cap stocks; and
- Incentivizing research coverage.
A bit of additional commentary on these suggestions is offered in the letter, which may be found here: http://www.centerforcapitalmarkets.com/wp-content/uploads/2017/08/Follow-Up-Letter-to-July-28-Roundtable-on-Access-to-Capital.pdf?x48633
The Staff of the SEC also recently updated the procedures relating to nonpublic review of draft registration statements. Specifically, the following guidance was added:
The nonpublic review process is available for Securities Act registration statements prior to the issuer’s initial public offering date and for Securities Act registration statements within one year of the IPO. In identifying the initial public offering date, we will refer to Section 101(c) of the JOBS Act. The nonpublic review process is available for the initial registration of a class of securities under Exchange Act Section 12(b) on Form 10, 20-F or 40-F. [added August 17, 2017]
An issuer that has a registration statement on file and in process may switch to the nonpublic review process for future pre-effective amendments to its registration statement provided it is eligible to participate in the nonpublic review process and it agrees to publicly file its amended registration statement and all draft amendments in accordance with the time frame specified above. [added August 17, 2017]
See the procedures here: https://www.sec.gov/corpfin/announcement/draft-registration-statement-processing-procedures-expanded