© 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


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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 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


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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)


*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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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


Domino Effect: Small Cap to IPO to Venture to Start-Up - The IPO is the “Canary in the coal mine.”


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


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)


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)


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


$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


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)


The JOBS Act Removed Cost For Issuers But Has Yet to Improve

Incentives to Provide Aftermarket Support

Time to Build the “Highways”

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1414

SEC has been asked to study the impact of “Decimalization” on Capital Formation



1515

Decimalization (decline in Tick Sizes) is directly related to the loss of small IPOs



1616

Pre- and Post- Decimalization: Are we better off?



Loss of the Ecosystem: Underwriting Groups

Microsoft’s IPO (1986) vs. LinkedIn’s IPO (2011)

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Source: Microsoft IPO Final Prospectus, Capital Markets Advisory Partners, LLC.

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Microsoft IPO: $58,695,000 March 13, 1986Underwriter Table from Final Prospectus 116 Underwriters (p. 1 of 3)


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Microsoft IPO: $58,695,000 March 13, 1986Underwriter Table from Final Prospectus 116 underwriters (p. 2 of 3)



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Microsoft IPO: $58,695,000 March 13, 1986Underwriter Table from Final Prospectus 116 underwriters (p. 3 of 3)



Source: LinkedIn IPO Final Prospectus

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LinkedIn IPO: $352,800,000 May 18, 2011 Underwriter Table from Final Prospectus 5 underwriters


• 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)

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23

Capital Markets Advisory Partners

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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 david weild 212.542.9979 [email protected]...

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