Markets

Cloudy Fiscal Future Mars Growth Capital Formation

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Eleven months into the year, it’s clear that 2012 is shaping up as one of the worst capital raising environment for small growth companies in recent memory. While deal making in the first half of 2012 suggested that activity would at least match 2011, the pace of transactions have trailed off since July 1 amid uncertainty surrounding the elections and future tax and spending policies in Washington D.C.

So far this year, growth companies and investors have raised $11.8 billion in 379 growth equity private placements (GEPPs), according to PlacementTracker, a division of Sagient Research. By comparison, there were 417 transactions completed that generated $12.3 billion in financing in the first 11 months of 2011, and 538 deals valued at $13.8 billion over the same 2010 period. At the halfway mark of 2012, issuers had raised $6.6 billion in 216 deals. The growth equity private placement dataset comprised emerging growth companies with market capitalizations from $10 million to $1 billion with share prices over $1.

Markets

Q3 Growth Capital Formation Bucks Summer Lull

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Emerging growth companies (EGCs) accelerated fund raising during a traditionally sleepy time for the capital markets this year, although market participants suggest that small cap issuers still must crest steep challenges to find cash – let alone “friendly” money in the private placement market. EGCs raised $3.2 billion in 105 growth equity private placement transactions (EPPs) in the third quarter, according to PlacementTracker, a service of Sagient Research. While activity and dollar volume decreased from the second quarter (145 EPPs; $3.8 billion), it still represented a significant improvement over the third quarter of 2011, when issuers raised $2.4 billion in 86 deals. (The growth capital EPP dataset includes issuers with a minimum stock price of $1 and market capitalizations of $10 million to $1 billion. It excludes equity lines, unknown structures, deals with floating and reset pricing, and at-the-market offerings.)

Companies issued 43 shelf offerings, making registered deals the most-used structure in the third quarter.

Markets

Emerging Growth Capital Rebounds in Q1

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Investment activity in U.S.-listed emerging growth companies via equity private placements surged 77% in the first quarter, while the average size of new placements rose 24% to more than $5.5 million, an impressive rebound from the final quarter of 2011. Even more impressive was the flood of money into growth-oriented “unstructured” equity private placements (EPPs) in emerging growth companies by long-term fundamental investors, which rose 268% over the previous quarter to $5.88 billion, representing 73% of all capital invested via equity-linked private offerings in U.S. public companies.1

The flow of growth-oriented private placement capital into emerging growth companies2 has eclipsed traditional “structured” private placement (i.e. “financial PIPE”) activity in the EPP market in terms of the percentage of deals and dollars for the second straight quarter, as growth capital investors embrace EPPs as an efficient vehicle to acquire and nurture positions in up-and-coming public companies. Unstructured equity private placements, unlike their financially-engineered structured cousins that once dominated the EPP market, are aligned with common shareholder interests and contain no variable conversion prices, resets, pre-sold equity line puts, or offsetting hedges that disengage structured investors’ returns from those of common shareholders. Fueling this trend are venture capital, private equity and other “long-only” and long-term growth-focused investors, which have embraced the EPP market and are providing leadership in identifying and nurturing high-growth companies during their earliest stages of post-private life. These “sponsored” growth capital EPPs, which include at least one fundamental investor that is primarily a venture capital, private equity, mutual fund, family office or corporate strategic investor, accounted for 31 deals comprising $3.81 billion in capital in the first quarter, with the median placement valued at more than $15 million.