Changes that Undermined the Market for
Small Cap Stocks and IPOs
The Long Road Back.
SoHo Loft
Greenberg Traurig | US Advisors
New York, NY
May 17, 2012
David Weild
212.542.9979
[email protected]
© Capital Markets Advisory Partners, LLC
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
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The JOBS Act
History (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
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3
Key Slide Driving The JOBS Act
As seen in the study "Market structure is causing the IPO crisis—and more"
Percent of total U.S. IPOs
100%
90%
Allegations of Spread Fixing (1994)
Manning Rule (1996)
Transactions raising at least $50 million
OHRs (1997)
Regulation ATS (1998)
80%
70%
Decimalization (2001)
60%
50%
Sarbanes-Oxley (2002)
Reg. NMS (2005)
40%
30%
20%
10%
Transactions raising less than $50 million
0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
YTD
Sources: Grant Thornton LLP, Capital Markets Advisory Partners and Dealogic
Data includes corporate IPOs as of 6/30/11, excluding funds, REITs, SPACs and LPs
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Key Slide Driving The JOBS Act: 43.5% Loss In
Number of Listed Companies
As seen in the study "A wake up call for America"*
200
Indexed value of selected global exchange listings
(1997 = 0)
China
150
Hong Kong
100
Australia
50
Germany
Tokyo
0
London
(50)
Toronto
United States
(100)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
YTD
Sources: Grant Thornton LLP, Capital Markets Advisory Partners, World Federation of Exchanges and individual stock exchanges
*March 16, 2011; House Financial Services Committee “Hearing on Legislative Proposals to Promote Job Growth, Capital Formation and Market Certainty”
statement by David Weild
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Domino Effect: Small Cap to IPO to Venture to StartUp - The IPO is the “Canary in the coal mine.”
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The JOBS Act: Impact on Reg. D Markets
Unaffected
(Market
will
determine)
Largely
Unaffected
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Disclosure
Standards
Should
Improve
The JOBS Act: Impact on Reg. A Markets
Reg. A
Improved
(Was Red)
Deal size
makes
viable (Blue
sky TBD)
(Was Red)
© Capital Markets Advisory Partners, LLC
Disclosure
Standards
Reg. A – May
develop
(TBD)
(Was Red)
The JOBS Act: IPO Markets
Best of all
Markets
Costs to
IPO now
lowered
(Was Red)
© Capital Markets Advisory Partners, LLC
Disclosure
Standards
Will improve
with research
but economic
model TBD
(Was Red)
The decline in IPO rates is independent of SarbanesOxley. That leaves the decline in the economic model
(tick sizes and commissions).
Success rate of trailing 30 IPO filings
Source: Capital Markets Advisory Partners, LLC, All rights reserved
Includes only corporate issuers. Excludes funds, MLPs, SPACs and REITs.
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$120
Source: National Venture Capital Association
Data as of 6/30/11
$100
$80
$60
$40
$20
$0
1991
1992
1993
1994
1995
"Penny Stocks"
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Deal Size ≥ $50 Million
Deal Size < $50 Milllion
2007
2008
2009
2010
2011
YTD
U.S. Unemployment Rate
12%
900
U.S. Unemployment Rate
Sources: Grant Thornton LLP, Capital Markets Advisory Partners, Dealogic and U.S. Department of Labor
Data includes corporate IPOs as of 6/30/11, excluding funds, REITs, SPACs and LPs
800
10%
700
8%
600
500
6%
400
4%
300
200
2%
100
0%
0
1991
1992
1993
1994
1995
1996
© Capital Markets Advisory Partners, LLC
1997
1998
1999
2000
2001
2002
11
2003
2004
2005
2006
2007
2008
2009
2010
2011
YTD
Number of U.S. IPOs
U.S. Venture Capital Raised (In Billions)
We would have enjoyed a venture-backed post 1990s
'IPO Echo Boom,' but Reg. ATS killed it
Much at stake: We left 850 IPOs/year on the table
and 5% unemployment
U.S. IPOs (Actual)
U.S. IPOs (Projected)
U.S. Unemployment Rate (Actual)
U.S. Unemployment Rate (Projected)
12%
1,000
900
10%
800
600
6%
500
400
4%
300
200
2%
100
0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Est. Est. Est.
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 Labor
Data includes corporate IPOs as of 6/30/11, excluding funds, REITs, SPACs and LPs
© Capital Markets Advisory Partners, LLC
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Number of U.S. IPOs
U.S. Unemployment Rate
700
8%
The JOBS Act Removed Cost For Issuers But
Has Yet to Improve Incentives to Provide
Aftermarket Support
Time to Build the “Highways”
© Capital Markets Advisory Partners, LLC
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SEC has been asked to study the impact of “Decimalization” on
Capital Formation
Transactions
raising at least
$50 million
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Decimalization (decline in Tick Sizes) is directly
related to the loss of small IPOs
Transactions
raising at least
$50 million
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Pre- and Post- Decimalization: Are we better
off?
Transactions
raising at least
$50 million
© Capital Markets Advisory Partners, LLC
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Loss of the Ecosystem: Underwriting Groups
Microsoft’s IPO (1986) vs. LinkedIn’s IPO (2011)
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Microsoft IPO: $58,695,000 March 13, 1986
Underwriter Table from Final Prospectus 116 Underwriters (p. 1 of 3)
Source: Microsoft IPO Final Prospectus, Capital Markets Advisory Partners, LLC.
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Microsoft IPO: $58,695,000 March 13, 1986
Underwriter Table from Final Prospectus 116 underwriters (p. 2 of 3)
Source: Microsoft IPO Final Prospectus, Capital Markets Advisory Partners, LLC.
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Microsoft IPO: $58,695,000 March 13, 1986
Underwriter 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
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LinkedIn IPO: $352,800,000 May 18, 2011
Underwriter Table from Final Prospectus 5 underwriters
Source: LinkedIn IPO Final Prospectus
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Two Solutions (Both address the economic
model)
•
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 Oped dated October 28, 2011, entitled “How to Revive Small-Cap IPOs”)
© Capital Markets Advisory Partners, LLC
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Capital Markets Advisory Partners
About Capital Markets Advisory Partners, LLC
been cited by Members of Congress and Regulators in the US and
overseas and by leading publications including, The Economist,
Forbes, The Financial Times, The New York Times and The Wall
Street Journal.
Capital Markets Advisory Partners is a pioneer in developing
methods to dramatically increase the size and quality of distribution
on IPOs and follow-on offerings. Collectively, we bring hundreds
of years of experience from leading institutions.
Recently, this work was also cited in:
• The President’s Council on Jobs and Competitiveness (Jobs
Council) Interim Report led by Jeffrey Immelt of General Electric
• The IPO Task Force Report to the US Treasury, led by Kate
Mitchell, past Chairman of the National Venture Capital
Association.
Studies authored by two of our principals (David Weild and Edward
Kim) and supported and published by the major accounting, tax
and advisory firm of Grant Thornton have been entered into the
Congressional Record and the Federal Register and our principals
have participated in or testified in front of:
• The NYSE and National Venture Capital Association’s (NVCA)
Blue Ribbon Panel to restore liquidity in the US venture capital
industry (2009)
• The CFTC-SEC Joint Panel on Emerging Regulatory Issues
(2010)
• The House Financial Services Committee’s Subcommittee on
Capital Markets (2011)
• The U.S. Treasury’s Capital Formation Conference (2011).
Capital Markets Advisory Partners was founded by David Weild, the
former vice chairman and head of listed companies and related
businesses at NASDAQ and former head of equity capital markets
and corporate finance at Prudential Securities. David also serves as
Chairman of the Small Business Financing Crisis Task Force of the
ISEEE (International Stock Exchange Executives Emeriti).
These studies, supported and published by Grant Thornton, have
© Capital Markets Advisory Partners, LLC
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Changes that Undermined the Market for
Small Cap Stocks and IPOs
The Long Road Back.
SoHo Loft
Greenberg Traurig | US Advisors
New York, NY
May 17, 2012
David Weild
212.542.9979
[email protected]
© Capital Markets Advisory Partners, LLC