An initial public offering (IPO) is a major event in the life of any firm. But what does an IPO imply for the industry’s future? In our paper, An IPO’s Impact on Rival Firms, which was recently made publicly available on SSRN, we take a structural approach that allows different industries to progress in different ways post IPO. If one is forced to make a sweeping generalization, then this paper finds an IPO augurs in an era of reduced profits and greater consumer mobility within an industry. Unlike a static model, a structural model’s parameters produce implications about magnitudes rather than just signs. This permits one to assess whether the estimates are economically “reasonable in a straightforward manner.”
Posts Tagged ‘IPOs’
Number and Size of Filings
- Plaintiffs filed 78 new federal class action securities cases (filings) in the first six months of 2014—13 fewer than in the second half of 2013, but slightly higher than the 75 filings in the first half of 2013. This number was 18 percent below the historical semiannual average of 95 filings observed between 1997 and 2013.
- The total Disclosure Dollar Loss (DDL) of filings remained at low levels. Total DDL was $30 billion in the first half of 2014, 52 percent below the historical semiannual average of $62 billion.
In our paper, The JOBS Act and Information Uncertainty in IPO Firms, which was recently made publicly available on SSRN, we examine whether the Jumpstart Our Business Startups Act (JOBS Act) increases information uncertainty in firms with initial public offerings (IPOs). The JOBS Act, which was signed into law in April 2012, creates a new category of issuer, the Emerging Growth Company (EGC), and eases regulations for EGCs to encourage initial public offerings of their shares. Specifically, the Act includes provisions that allow firms with EGC status to reduce the scope of mandatory disclosure of financial statement and executive compensation information, to file draft registration statements confidentially with the Securities and Exchange Commission (SEC), to delay application of new or revised accounting standards, and to delay compliance with Section 404(b) of the Sarbanes-Oxley Act (SOX), which relates to auditor attestation on internal controls. We find evidence consistent with the easing of these regulations increasing information uncertainty in the IPO market.
Our study provides a comprehensive analysis of the 2013 US IPO market.
We examined several key aspects of IPOs, including:
- The JOBS Act
- Financial profiles and accounting disclosures
- SEC comments and timing
- Corporate governance
- IPO expenses
- Deal structure
- Sponsor-backed companies
We reviewed 100 of the 136 IPOs that priced in 2013 and met our study criteria.
Significant new rules to strengthen the UK premium listing regime have come into force today (The Listing Rules (Listing Regime Enhancements) Instrument 2014). The rules have been the subject of two rounds of consultation by the UK Financial Conduct Authority (“FCA”) and are designed in particular to improve the governance of premium listed companies with a controlling shareholder. Feedback on the responses received has also been published today by the FCA (PS14/8: Response to CP13/15—Enhancing the effectiveness of the Listing Regime).
We summarise the main elements of the new regime below, which are largely as proposed by the FCA in its previous consultation document (see our Client Memorandum dated November 7, 2013). Companies contemplating a premium listing will need to consider the new rules as part of their IPO process and, over the coming months, existing premium listed companies with controlling shareholders will need to implement a number of new measures to comply with the new rules.
We analyzed the terms of 156 venture financings closed in the first quarter of 2014 by companies headquartered in Silicon Valley.
Overview of Fenwick & West Results
Valuation results in 1Q14 were very strong.
- Up rounds exceeded down rounds 76% to 8% with 16% flat. The 68 point difference between up and down rounds was the largest since 2Q07, when the spread was 70 points
- The Fenwick & West Venture Capital Barometer™ showed an average price increase of 85%, a significant increase from 57% in 4Q13.
- The median price increase of financings in 1Q14 was 52%, a significant increase from 27% in 4Q13 and the highest amount since we began calculating medians in 2004.
- Software and internet/digital media continued to be the strongest industry sectors, with life science, cleantech and hardware lagging but showing respectable results. The percentage of all financings that are for software companies has trended up in recent years, hitting 45% in this quarter.
- The use of senior liquidation preference fell for the third quarter in a row, an indication of companies having leverage in negotiations with investors.
For months Alibaba Group Holding Limited (“Alibaba”) had tried to convince the Stock Exchange of Hong Kong Limited (“SEHK”) that they should open their doors to the internet giant. Alibaba had proposed a system through which a handpicked group of “partners” would nominate a majority of its board. At the time, commentators rushed to report that Alibaba was seeking to implement a dual share class structure, threatening investor protections. Alibaba had offered an alternative take and tried to convince the public that there was no story at all: their proposed partnership structure merely offered an “alternative view of good corporate governance”. Charles Li, the Chief Executive of the SEHK was meanwhile hearing voices from all sides in his dreams.
On April 28, 2014, shares of Fantex, Inc. (Fantex), which are linked to the performance and earnings of Vernon Davis, star tight end of the San Francisco 49ers, were sold to the public. Other professional football players for whom Fantex has filed initial public offering (IPO) registration statements include quarterback EJ Manuel of the Buffalo Bills and running back Arian Foster of the Houston Texans.
What Is Fantex?
Fantex is an online securities exchange that is a member of the Securities Investor Protection Corporation (SIPC) and Financial Industry Regulatory Authority (FINRA).
How Does Fantex Work?
2013 was the strongest year for venture-backed initial public offerings (IPOs) in almost a decade: 82 deals (the most since 2007) generated aggregate proceeds of over $11.2 billion, an average offering amount of $137.2 million. At least one venture-backed company went public each month in 2013, and the pace of IPOs has accelerated in the first three months of 2014.
The small company initial public offering (IPO) is dead. In 1997, there were 168 exchange-listed IPOs for companies with an initial market capitalization of less than $75 million. In 2012, there were seven such IPOs, the same number as in 2003.
While there is no doubt that the small company IPO has disappeared, the cause of this decline is uncertain and disputed.
A number of theories have been offered for this decline, but the most prominent theory attributes the decline to increased federal regulation and market structure changes also driven by federal regulation. The explanation for this decline is important, because it has driven passage of the JumpStart Our Business Start-ups Act (the JOBS Act) as well as recently introduced Congressional legislation to mandate decimalization for a five-year period for all companies with a market capitalization of $750 million or below.