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Transcript of © Capital Markets Advisory Partners, LLC David Weild 212.542.9979 [email protected]...
© Capital Markets Advisory Partners, LLC
David [email protected]
Changes that Undermined the Market for Small Cap Stocks and IPOsThe Long Road Back.
SoHo LoftGreenberg Traurig | US AdvisorsNew York, NYMay 17, 2012
© Capital Markets Advisory Partners, LLC
2
What Does CMA Partners Do?
• Market Structure and Capital Formation Experts• Help Issuers Execute Better Deals
– Management aligned advisor• Increase investor demand• Cut deal execution risk• Improve price• Improve aftermarket performance
© Capital Markets Advisory Partners, LLC
33
The JOBS ActHistory (our role)
• Our work, published and supported by Grant Thornton, was the impetus for The JOBS Act.
Subscribe to the Capital Markets Series at www.GrantThornton.com/subscribe
© Capital Markets Advisory Partners, LLC
4
Key Slide Driving The JOBS ActAs seen in the study "Market structure is causing the IPO crisis—and more"
Sources: Grant Thornton LLP, Capital Markets Advisory Partners and DealogicData includes corporate IPOs as of 6/30/11, excluding funds, REITs, SPACs and LPs
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD
Transactions raising less than $50 million
Transactions raising at least $50 million
Percent of total U.S. IPOs
Sarbanes-Oxley (2002)
OHRs (1997)
Manning Rule (1996)Allegations of Spread Fixing (1994)
Regulation ATS (1998)
Decimalization (2001)
Reg. NMS (2005)
© Capital Markets Advisory Partners, LLC
*March 16, 2011; House Financial Services Committee “Hearing on Legislative Proposals to Promote Job Growth, Capital Formation and Market Certainty”
statement by David Weild
5
Key Slide Driving The JOBS Act: 43.5% Loss In Number of Listed CompaniesAs seen in the study "A wake up call for America"*
(100)
(50)
0
50
100
150
200
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD
Ind
ex
ed
va
lue
of s
ele
cte
d g
lob
al e
xc
ha
ng
e li
sti
ng
s
(19
97
= 0
)
China
Australia
Germany
Tokyo
London Toronto
United States
Hong Kong
Sources: Grant Thornton LLP, Capital Markets Advisory Partners, World Federation of Exchanges and individual stock exchanges
© Capital Markets Advisory Partners, LLC
Domino Effect: Small Cap to IPO to Venture to Start-Up - The IPO is the “Canary in the coal mine.”
© Capital Markets Advisory Partners, LLC
DisclosureStandards
The JOBS Act: Impact on Reg. D Markets
Aft
erm
arke
t S
uppo
rtIssuer
Costs
Unaffected (Market
will determin
e)
Largely Unaffecte
d
Should Improve
© Capital Markets Advisory Partners, LLC
DisclosureStandards
The JOBS Act: Impact on Reg. A Markets
Aft
erm
arke
t S
uppo
rtIssuer
Costs
Reg. A Improved
(Was Red)
Deal size makes viable
(Blue sky TBD)(Was Red)
Reg. A – May develop (TBD)(Was Red)
© Capital Markets Advisory Partners, LLC
DisclosureStandards
The JOBS Act: IPO Markets
Aft
erm
arke
t S
uppo
rtIssuer
Costs
Best of all
Markets
Costs to IPO now lowered
(Was Red)
Will improve with research but economic model TBD(Was Red)
© Capital Markets Advisory Partners, LLC
10
The decline in IPO rates is independent of Sarbanes-Oxley. That leaves the decline in the economic model (tick sizes and commissions).
Source: Capital Markets Advisory Partners, LLC, All rights reservedIncludes only corporate issuers. Excludes funds, MLPs, SPACs and REITs.
Success rate of trailing 30 IPO filings
© Capital Markets Advisory Partners, LLC
$0
$20
$40
$60
$80
$100
$120
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD
U.S
. Ven
ture
Cap
ital
Rai
sed
(In
Bill
ion
s)
0
100
200
300
400
500
600
700
800
900
0%
2%
4%
6%
8%
10%
12%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD
Nu
mb
er o
f U.S
. IP
Os
U.S
. Un
emp
loym
ent
Rat
e
"Penny Stocks" Deal Size < $50 Milllion Deal Size ≥ $50 Million U.S. Unemployment Rate
11
We would have enjoyed a venture-backed post 1990s 'IPO Echo Boom,' but Reg. ATS killed it
Source: National Venture Capital AssociationData as of 6/30/11
Sources: Grant Thornton LLP, Capital Markets Advisory Partners, Dealogic and U.S. Department of LaborData includes corporate IPOs as of 6/30/11, excluding funds, REITs, SPACs and LPs
© Capital Markets Advisory Partners, LLC
12
Much at stake: We left 850 IPOs/year on the table and 5% unemployment
The 'U.S. IPOs (Projected)' estimate assumes 520 IPOs per year starting in 1991 with a 3% compound annual growth rate equivalent to the U.S. GDP growth rate. A simple linear regression model was created using historical data to predict the 'U.S. Unemployment Rate (Projected)' based on this number of projected IPOs.
Sources: Grant Thornton LLP, Capital Markets Advisory Partners, Dealogic and U.S. Department of LaborData includes corporate IPOs as of 6/30/11, excluding funds, REITs, SPACs and LPs
-
100
200
300
400
500
600
700
800
900
1,000
0%
2%
4%
6%
8%
10%
12%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Est.
2012 Est.
2013 Est.
Nu
mb
er o
f U.S
. IP
Os
U.S
. Un
emp
loym
ent
Rat
e
U.S. IPOs (Actual) U.S. IPOs (Projected)
U.S. Unemployment Rate (Actual) U.S. Unemployment Rate (Projected)
© Capital Markets Advisory Partners, LLC
The JOBS Act Removed Cost For Issuers But Has Yet to Improve
Incentives to Provide Aftermarket Support
Time to Build the “Highways”
13
© Capital Markets Advisory Partners, LLC
1414
SEC has been asked to study the impact of “Decimalization” on Capital Formation
Transactions raising at least $50 million
© Capital Markets Advisory Partners, LLC
1515
Decimalization (decline in Tick Sizes) is directly related to the loss of small IPOs
Transactions raising at least $50 million
© Capital Markets Advisory Partners, LLC
1616
Pre- and Post- Decimalization: Are we better off?
Transactions raising at least $50 million
© Capital Markets Advisory Partners, LLC
Loss of the Ecosystem: Underwriting Groups
Microsoft’s IPO (1986) vs. LinkedIn’s IPO (2011)
17
© Capital Markets Advisory Partners, LLC
Source: Microsoft IPO Final Prospectus, Capital Markets Advisory Partners, LLC.
18
Microsoft IPO: $58,695,000 March 13, 1986Underwriter Table from Final Prospectus 116 Underwriters (p. 1 of 3)
© Capital Markets Advisory Partners, LLC
19
Microsoft IPO: $58,695,000 March 13, 1986Underwriter Table from Final Prospectus 116 underwriters (p. 2 of 3)
Source: Microsoft IPO Final Prospectus, Capital Markets Advisory Partners, LLC.
© Capital Markets Advisory Partners, LLC
20
Microsoft IPO: $58,695,000 March 13, 1986Underwriter Table from Final Prospectus 116 underwriters (p. 3 of 3)
Source: Microsoft IPO Final Prospectus, Capital Markets Advisory Partners, LLC.
© Capital Markets Advisory Partners, LLC
Source: LinkedIn IPO Final Prospectus
21
LinkedIn IPO: $352,800,000 May 18, 2011 Underwriter Table from Final Prospectus 5 underwriters
© Capital Markets Advisory Partners, LLC
• Issuer’s Choice - Board Chooses “Tick Size” - Issuers deserve choice in how the market in their shares is made and supported (“Mass Customization”)
– Issuer Boards of Directors should be allowed to determine ‘tick size’ which would cost little to implement and provide an important tool to impact support (research, sales and capital) and modulate speculative trading and volatility.
• Alternative Sub $2 Billion Market Cap Stock Market - Issuers (and Americans) deserve a sub-$2 billion market cap stock market structured to create focus on capital formation and job creation (see Wall Street Journal Op-ed dated October 28, 2011, entitled “How to Revive Small-Cap IPOs”)
Two Solutions (Both address the economic model)
22
© Capital Markets Advisory Partners, LLC
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Capital Markets Advisory Partners
23
© Capital Markets Advisory Partners, LLC
David [email protected]
Changes that Undermined the Market for Small Cap Stocks and IPOsThe Long Road Back.
SoHo LoftGreenberg Traurig | US AdvisorsNew York, NYMay 17, 2012