1 THE DAILY DEAL TUE S DAY J ULY 1 2 201 6
SPECIAL REPORT:
2016 Q2 PIPE LEAGUE TABLES
Resurgent PIPE market doubles, at $25B, in Q2
BY PAUL SPRINGER
The second-quarter PIPE market recovered
from a volatility-battered start of the year,
more than doubling the amount raised from
the previous quarter. There were nearly 345
transactions in the second quarter representing efforts to raise $25.98 billion, a sum adding up to an increase of over 100% beyond the
first quarter’s deals.
A lull in volatility that was a major driver
of increased activity may not last, thanks to
the Brexit vote to leave the EU and its contentious aftermath.
“We think volatility goes higher, not lower, for the market, and this spells trouble for
small caps,” Jefferies LLC equity strategist
Steven G. DeSanctis told The Deal. “I still
think companies have access to capital, especially given the rebound in prices.”
In terms of dollars, the recent quarter
was the most robust since the first quarter of
2008, when capital markets on the verge of
implosion put $43 billion into PIPEs.
Some 345 second-quarter PIPE deals represented a 56% increase over the first quarter
and a 12.75% increase over the second quarter of 2015.
The biggest jump in second-quarter transactions was in offerings from issuers with a
market cap under $50 million, which accounted for 156 deals, more than a 50% increase from the previous quarter.
The Deal’s private placement data service,
PrivateRaise, tracks PIPEs and Rule 144a
offerings from $1 million and up, excluding
foreign issuers. However, The PIPEs Report
analysis excludes 144a deals.
As is always the case, raising capital is
hard work, and it’s particularly burdensome
for early-stage companies with a lean management structure.
Corbus Pharmaceuticals Holdings
Corp. (CRBP) raised $15 million in a registered direct offering without the services of
an investment bank. CEO Yuval Cohen described the circumstances as unique—and
dependent on over a year of getting to know
the investors, one of which okayed the investment within 60 seconds of hearing about it.
Cohen noted that capital raising consumes
a great deal of management’s time. He said he
is pleased to have sufficient means that he
can spend his time managing the pipeline for
Resunab, a compound that is nearing catalyst
points in Phase 2 trials for multiple orphan
conditions. The CEO said skipping an investment bank probably saved about $1 million on
the registered direct.
Likewise, Biotricity Inc. CEO Waqaas
Al-Siddiq acknowledged the time involved in
raising capital. He said that while it’s possible
to raise cash without an agent, doing so can
involve more time than management can afford to lose.
“A placement agent can be your best friend
or a serious liability,” Al-Siddiq said. He said
issuers should choose their placement agent
carefully and consider the terms of the deals
they bring—especially warrants—and the
fees they charge.
Investment banking services don’t come
cheap, partly because of the liabilities the
banks have to assume and the value of their
connections with investors. One deal in the
offing from this quarter illustrates some of
the areas where fees can be charged.
Bio-Matrix Scientific Group Inc. disclosed an arrangement with CIM Securities
LLC that calls for a fee of 10% of PIPE proceeds. But the agent would receive another
2.5% of proceeds from investors it brings to
the table, 5% of subordinated or mezzanine
funding, 3% of senior debt financing, 5% of
any M&A transaction, 5% of strategic partnership deals and a retainer of $12,500 in
cash and warrants.
The healthcare industry led the pack with
the largest number of transactions (132), followed by technology (46), energy (43), industrials (39), financials (29) and basic materials
(22). Other sectors generated less than 15
PIPEs each. For comparison, the first-quarter
healthcare market with its inactive IPO landscape yielded only 90 PIPEs.
While first-quarter volatility issues have
not disappeared, they have been subsumed
by new fears about European economics in
this year of U.S. presidential politics.
The VIX CBOE volatility index reflects
conditions that spur or retard PIPE financing negotiations. The VIX closed on Jan. 4 at
$20.70 and traded up from there, reaching a
$30.95 intraday high later in January—a level
that chills dealmaking.
After hovering below $15, the index blew
through $25 the day after the Brexit vote.
While the number soon came down, sustained volatility above the $20 level does not
bode well for financing negotiations.
“Out of the fire and into the frying pan for
investors, as we now have to deal with earnings season after trying to figure out the impact of Brexit,” Jefferies research said.
The Brexit problem might not be so bad
for unleveraged energy companies, according to Justin Adams, SunTrust Robinson
Humphrey’s managing director and head of
energy equity origination. “We’re fairly insulated from it,” Adams said, noting that there
was no net outflow of cash from the energy
sector earlier this year when equity markets
experienced a $3 billion outflow overall.
“Equity is coming in, and institutional
investors are underweight,” Adams said.
“Companies with healthy balance sheets are
getting funding.” Adams said it’s possible the
industry will pick up even more if oil prices
can reach the $60 to $65 per barrel level, a
price point where more exploration and production becomes financially feasible.
Energy offerings for the quarter totted up
to some $4.97 billion in 43 transactions. This
would have been the largest sector in terms of
dollars, except for an unusual show of force in
another industry.
Media deals, which in the first quarter
raised barely $151 million, were responsible
for $9.47 billion in the second quarter.
Second-place energy saw a different
breakdown of issuers in the second quarter,
as middle market and smaller companies began to find capital markets softening up.
Over half the offerings involved a raise of
$50 million or less, and 20 sought $10 million
or less. All of the sub-$50 million offerings
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PIPE LEAGUE TABLES Q2 2016
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raised actual capital, as opposed to ATM offerings. After energy, healthcare industry
PIPEs raised the next largest amount of capital, $3.33 billion.
Technology PIPEs raised $2.75 million,
and here again the transactions ranged from
$1 million to Symantec’s $1.25 billion convertible debt placement.
In regulatory terms, unregistered PIPEs
remained popular, accounting for about 75%
of the PIPEs, inclusive of ATMs and equity
line arrangements.
Convertible debt and convertible preferred stock each accounted for about 10% of
the quarter’s PIPEs. Convertible debt PIPEs
raised $2.9 billion dollars in the recent quarter. Coupons averaged just under 6%, but
many interest rates were higher on an annualized basis, especially taking into account
original issue discounts. Amarantus BioSciences Holdings Inc. raised $1.35 million
in a one-year convertible promissory note
investment managers
RANKED BY # OF INVESTMENTS
Rank
PIPE with a 12% coupon and a 10% OID discount, making for a 22% annual rate.
Convertible stock PIPE dividends averaged out at 6.39%, but that figure belies the
high end of the range, which was 25%.
The investors with the most dollar skin
in the game, aside from strategic investors in
the TWC deal, were Bain Capital Inc. and
the Ontario Municipal Employees Retirement System. Bain invested $750 million in
Symantec, and OMERS invested $750 million in Great Plains Energy Inc. (GXP) n
investor legal counsel
RANKED BY # OF PLACEMENTS ADVISED
Investment Manager
#
Rank
Investor Legal Counsel
#
12
1
Schulte Roth & Zabel LLP 5
7
1
Ellenoff Grossman & Schole LLP 5
Empery Asset Management LP 6
3
Morrison & Foerster LLP 4
4
Heights Capital Management Inc.
5
4
Baker Botts LLP
3
5
Magnetar Capital LLC 4
5
Aspire Capital Partners Inc.
4
4
Willkie Farr & Gallagher LLP 3
5
Anson Capital LP 4
4
Ropes & Gray LLP 3
4
Sidley Austin LLP 3
4
Latham & Watkins LLP 3
4
Morgan, Lewis & Bockius LLP 3
1
Sabby Management LLC
2
IntraCoastal Capital LLC
3
*EXCLUDES transactions where Investment Amount has not yet been disclosed
placement agents
RANKED BY # OF PLACEMENTS
Rank
Placement Agent
#
1
H.C. Wainwright & Co.
29
2
Roth Capital Partners LLC
14
3
Cowen and Company LLC
4
Jefferies Group LLC
5
Chardan Capital Markets LLC
9
7
6
Investor Legal Counsel
Ellenoff Grossman & Schole LLP 2
Goodwin Procter LLP Investor Legal Counsel
#
Cooley LLP
14
2
Sichenzia Ross Friedman Ference LLP 11
3
Fenwick & West LLP 8
4
Hogan Lovells
6
27
5
Paul Hastings LLP 5
10
5
K&L Gates LLP
5
Morrison & Foerster LLP 5
#
1
Rank
1
placement agent legal counsel
RANKED BY # OF PLACEMENTS ADVISED
Rank
issuer legal counsel
RANKED BY # OF PLACEMENTS ADVISED
3
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC
5
5
4
Proskauer Rose LLP 4
5
Wilson Sonsini Goodrich & Rosati PC 5
4
Lowenstein Sandler LLP 4
5
Lowenstein Sandler LLP 5
LEAGUE TABLE DATA POWERED BY PRIVATERAISE,
THE LEADING PROVIDER OF SMALL CAP EQUITY FINANCING DATA.
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