Markets

Sponsored Deals Recovering from Slow Q1

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After a slow 2013 first quarter, sponsored growth equity private placements – deals taken by long-only fundamental investors such as venture capital, private equity, corporations, endowments, pension and mutual funds, generated more deals and more dollars in the second quarter. Sponsor investors in the second quarter include middle market PE firm GCP Capital Partners, Silicon Valley Bank, venture capital investor Oxford Finance Corp., institutional advisor MidCap Financial, John Hancock Regional Bank Fund, Fidelity Securities, Kaiser Permanente Ventures, CMEA, Bessemer Investment Management and Morgan Stanley Wealth Management. Sponsors active in the first quarter included pharma buyout specialist Frost Group, energy investor Natural Gas Partners, storied tech VC Kleiner Perkins, multi-stage VC firm Oak Investment Partners, long-biased hedge fund Aspire Capital, business development company Hercules Technology Growth Capital (HTGC), the Janus and Legg Mason mutual funds, and China sovereign fund CITIC Capital. Some 71 sponsored transactions in the second quarter raised $1.94 billion, or about four times as much as a mere 26 sponsored deals raised in the previous quarter. In the first quarter, the 26 sponsored deals raised only $480 million, representing just 10% of the deal activity and less than 7% of the capital raised in the broader equity private placement (EPP) market of 252 offerings that raised $7.23 billion.

Markets

Market Wobbles Fail to Deter Deals

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The recent spike in market volatility over the past few weeks has yet to temper the bullishness of growth companies, investors or bankers in what so far has been a robust year of private placement deal making. The pace of transactions remained steady in June despite a 500-point drop in the Dow Jones Industrial Average to begin the month. That was followed by a mid-month seesaw ride that led to a 760-point drop over two-and-a-half days and then a strong rebound in the final week. Companies raised about $1.1 billion in 33 growth equity private placement transactions (GEPPs) in June through the final trading day of the month, according to PlacementTracker, a division of Sagient Research. Additionally, eight growth issuers established at-the-market agreements that could raise a potential $370 million.

Markets
OTCQX

Richardson & Patel Approved as DAD/PAL for OTCQX Companies

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Small cap issuer counsel Richardson & Patel LLP has been approved by OTC Markets to join its list of Designated Advisor for Disclosure (“DAD”) and Principal American Liaison (“PAL”) advisors for OTCQX companies. Companies supported by DAD/PALs are small, unlisted companies that are looking to gain investors and visibility in the market. OTC Markets Group President and CEO Cromwell Coulson said, “DADs and PALs play a critical role in the success and distinction of the OTCQX marketplace, our best marketplace, by providing a professional review of a company’s disclosure and management team and ongoing guidance on securities law and effective investor relations practices. We are pleased to add Richardson & Patel, one of the most reputable securities law firms in the nation, to our list of approved attorney DAD/PALs and look forward to working with them as we continue to grow the OTCQX marketplace”. Richardson & Patel joins seventeen other FINRA member firms, including the founding member Merriman Capital, which provide professional guidance for investor management, publish regular financial reports, and serve as issuer liaisons to the U.S. market.

Markets

Small Company Shelf Expansion Fuels Warrant Grab

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Warrants have become a fixture in registered direct growth equity private placements more than five years after the Securities and Exchange Commission loosened rules to allow some of the smallest companies to conduct registered direct offerings off of Form S-3. The trend counters early predictions that the SEC’s move would eventually provide issuers with better private placement deal terms. Because investors would receive free trading stock instead of restricted shares, the thinking went, they would temper their demand for such kickers – or at the least they would lose some leverage when negotiating for them. Yet warrants are now part of roughly half of all registered direct growth equity private placements (GEPPs), and according to a review of the deals by Growth Capital Investor, their inclusion hinges largely on share price and market capitalization. GCI analyzed the deals using data provided by PlacementTracker, a service of Sagient Research. (GEPPs are offerings of a least $1 million of stock or equity-linked debt that feature fixed purchase, conversion and warrant exercise price terms, and that are sold by companies that have market capitalizations from $10 million to $1 billion as well as a share price of at least $1 at closing.)

The growth of warrants in registered direct deals marks a substantial change from the typical terms of deals employing the once-infrequently used structure leading up to 2008.