April 15, 2019

IPO Trends: Go Big or Go Home?

Last week the market inched closer to peak “Unicorn” frenzy when – after what felt like a decade of speculation – Uber filed the Form S-1 for its IPO. Reuters reported that it’s seeking to raise $10 billion, which would be the largest offering since Alibaba went public in 2014. John will give his take on the prospectus tomorrow. For today, we’re looking back on IPO trends leading up to this enormous deal.

As Proskaur’s 6th Annual IPO Study shows, Uber’s IPO would build on trends from last year. Nearly half of the 94 IPOs in the study were conducted by companies with a market cap of at least $1 billion – with many of those deals coming from tech & health care behemoths. The 168-page study looks at a subset of IPOs that had an initial base price of $50 million or more. It offers all kinds of data points – and analyzes trends over the last six years. Here’s a few takeaways (also see this “D&O Diary” blog and Proskauer’s press release):

– 46% of analyzed deals were in the $100-250 million range, 48% of companies had a $1 billion+ market cap at pricing, 86% were EGCs

– 82% of IPOs priced in or above range, and the over-allotment was at least partially exercised in 77% of deals

– 99% of companies used the confidential submission process

– Average number of days from initial filing to pricing was 139, up slightly from the year before

– Average number of first-round SEC comments was down to 20 – and the study looks at the prevalence of “hot-button” comment topics, comments by sector, etc.

– 26% of companies included “flash results” for a recently-completed period – that number jumped to 50% for companies that priced within 45 days of quarter-end

– 47% of companies issued stock in a private placement within a year of going public

– 46% of companies disclosed a material weakness and 22% had a going concern qualification

– 15% of companies had multiple classes of stock – mostly in the tech sector – and 92% had a classified board

– 88% of US IPO issuers were incorporated in Delaware, 16% of IPOs came from Chinese companies

Unicorn IPOs: The More The Merrier

With companies staying private much longer these days than they did even five years ago, there’s a lot of pent up demand for “Unicorns” – venture capital-backed companies valued at $1 billion or more before going public (in Uber’s case, 90-100x more). The reason investors are itching to buy stock is because the companies are considered “high growth.” That’s bank-speak for “losing money” – one study even showed that the less profitable unicorns are, the more people like them! And that’s just one way these offerings can differ from those conducted by “regular” companies.

This “Unicorn IPO Report” from Intelligize takes a look at last year’s trends in this space, concluding that these “wild & independent creatures” actually demonstrate a “herd mentality” on some data points – not just on pricing, which is something that’s been written about a lot in the last few weeks & months – but also on things like (lack of) board diversity and the speed of their IPO process. Here are a few takeaways from this Mayer Brown blog (also see Intelligize’s press release):

– There were 20 unicorn IPOs last year, compared to 13 the year before

– A 7% underwriting fee remained the norm – despite concerns of an SEC Commissioner and legislators that smaller and medium-sized companies are paying higher fees

– About 30% of unicorns had multi-class share structures

– Other than Dropbox, all 2018 unicorns went public as EGCs – and took advantage of those scaled disclosure accommodations

– Excluding one outlier, the average time from draft registration statement filing to IPO was 132 days (shortest was 61 days) – about 140 days was spent between filing the draft and the Form S-1, with 28 days from S-1 to effectiveness (for the broader market, the average time from filing the S-1 to trading was 49 days)

Audit Committees: Auditor Assessment Template

Is your audit committee asking the right questions when it reengages your independent auditor each year? As detailed in this Cooley blog, the CAQ recently announced an updated version of its “External Auditor Assessment Tool” – with sample questions that are organized by category:

– Quality of services and sufficiency of resources provided by the engagement team
– Quality of services and sufficiency of resources provided by the audit firm;
– Communication and interaction with the external auditor; and
– Auditor independence, objectivity, and professional skepticism

The tool also includes a sample form and rating scale for obtaining input from company personnel about the external auditor, as well as resources for additional reading.

Liz Dunshee