Dave and I recently interviewed Keir Gumbs – Principal & General Counsel at Edward Jones – for the latest episode of “Mentorship Matters with Dave & Liz.” Keir needs no introduction to most readers of this blog – he’s been at the SEC, Covington, Uber, and he has spent a lot of time through the years making a positive impact on the corporate governance & securities community. Keir is also very motivating, and the conversation gave me renewed energy for my work and for those around me! Check out this 26-minute podcast to hear:
1. The role of mentors in Keir’s career development
2. Advice to young corporate and securities lawyers looking to learn from leaders in the field
3. Foundational skills and knowledge that set the stage for Keir’s career
4. Recommended resources and strategies for maintaining a deep and current understanding of the field
5. Keir’s approach to gathering and synthesizing information, and applying his judgment, to fit the context and audience
6. Which is better: the ’33 Act or the ’34 Act?
Thank you to everyone who has been listening to the podcast! If you have a topic that your think we should cover or guest who you think would be great for the podcast, feel free to contact Dave or me by LinkedIn or email.
We were optimistic last year about the IPO window opening. Hope glimmered as recently as last month, when a handful of high-profile IPOs priced or revealed plans to go public. And in addition to the SEC’s focus on capital raising, the House Financial Services Committee held a hearing in late March to discuss 40 bills aimed at improving access to private capital for companies across the country – as well as making public offerings more viable. Some of the proposed bills would extend accommodations for emerging growth companies and smaller reporting companies, for example. That’s encouraging!
But the tumbling stock market has put a damper on those efforts. This Business Insider article reports that some previously expected deals are taking a pause. The article also discusses the extended IPO slump that we’ve experienced over the past few years. Here’s an excerpt:
But now, the long-anticipated boom in IPOs has suddenly gone bust. CoreWeave’s public offering in March was the biggest tech IPO since 2021, but it was forced to price itself well below the expected range. And on Friday, StubHub and Klarna both announced they were putting off their planned IPOs, as Donald Trump’s tariffs sparked a huge slide in the stock market. IPO analysts at Renaissance now estimate that there could be as few as 150 deals this year, which would make 2025 the fourth straight down year for IPOs.
In addition to the market freefall, the article points to a lack of sell-side analysts, economic uncertainty, availability of private capital, and investors’ unrealistic expectations for IPO payoffs as pre-existing contributors to the low number of offerings. Companies could overcome that last issue by lowering their valuations, according to the article – which cites Klarna as an example of doing this successfully even though it is painful for early investors. It also says that some analysts are still holding out hope for an IPO rebound in the second half of this year.
Last week, Dave reminded us of 5 topics that existing public companies should consider as we make our way through this period of market uncertainty. The companies pumping the brakes on public offerings also have a few things to think about. Those that were already far down the IPO path are no doubt receiving a lot of tailored guidance from their bankers and lawyers. For those earlier in the process, I’d offer these thoughts:
1. Dual (or triple) track your options – The IPO window might reopen. But volatility also seems to be the “new normal.” IPO readiness is no quick feat, and you don’t want to be caught flat-footed. Consider shoring up your internal processes, understanding financial statement requirements for public offerings, and continuing with governance prep and other IPO readiness steps – while also seeking other exit or funding opportunities.
2. Stay well-capitalized – Depending on the circumstances, some companies will shift their attention towards a sale, while others will want to move ahead with other debt or equity financings to support their business strategies. This 2022 Wilson Sonsini playbook for late-stage private companies also recommends “prudent financial stewardship” and incentivizing employees.
3. Keep tabs on market and regulatory developments – Keep monitoring the performance of publicly traded peers so that you can recalibrate expectations about valuation and messaging for a future IPO or other financing. The SEC’s 44th Annual Small Business Forum – which is coming up this Thursday and includes our own Dave Lynn as a speaker – will be a great opportunity to hear from regulators and other small businesses about how they’re approaching capital raising requirements and opportunities.
4. Remember the big picture – The talking heads always emphasize during these downturns that the markets continue to eventually increase over time. An IPO may continue to be worthwhile, even in a down market, if the funding lays the groundwork for a bigger and better exit event. But also make sure to think through how your time as a publicly traded company would play out in terms of voting control, the activism threat landscape, etc.
As this recent Wilson Sonsini memo explains, private investments in public equity (PIPEs) and registered direct offerings (RDOs) can be attractive paths to capital during times of market volatility. Here are a few of the pros & cons:
PIPEs and RDOs can be good alternatives to traditional underwritten offerings, particularly during periods of market volatility, because they can be negotiated discreetly and publicly announced after the parties agree to terms. However, given the lack of company leverage (usually) and near-term illiquidity of the securities sold, the cost of capital is typically higher for PIPEs than underwritten offerings.
Because an investor receives freely tradable securities in an RDO, the securities are typically sold at a smaller discount to the current market price of the company’s common stock in an RDO than in a PIPE; in 2024, the average discount for PIPEs surveyed was 6.2% while RDOs surveyed priced the securities at an average premium of 2.0% above market price.
The 43-page report summarizes trends in these types of financings, based on the 205 PIPEs and RDOs by U.S.-based technology and life sciences companies that raised at least $10 million and had at least one closing between January 1 and December 31, 2024. Here are a few key takeaways:
– The mix of transactions shifted towards PIPEs. Compared to the prior year, 2024 saw a 38.1% increase in the number of PIPE transactions reviewed, while the number of RDOs remained unchanged. This shift may be driven by the SEC’s “baby shelf” rule, which limits the ability of smaller market cap companies (i.e., those with a public float of less than $75 million) to raise over one-third of their market cap using a registration statement on Form S-3 (which provides the flexibility to finance without necessarily undergoing SEC review) over the course of the previous 12 months.
When a company wishes to sell securities in excess of this limitation, it will typically do so through a PIPE. In 2024, 42.8% of PIPEs and 56.9% of RDOs were completed by companies with a public float under $75 million; however, of these small cap companies, 87.9% of PIPEs were for over one-third of the company’s public float (which would otherwise trigger the baby shelf rules even if no other securities were sold by the company over the prior 12 months), while only 55.2% of RDOs by small cap companies were for over a third of the company’s public float. See the sections on “2024 PIPE and RDO Activity” and “‘Baby Shelf’ Rule” for additional information.
– RDOs priced their securities at a premium to market price. 2024 saw a continuation of a trend of securities sold in RDOs pricing higher relative to prior periods. In 2024, the average premium for RDOs surveyed was 2.0%, compared to an average discount of 1.8% and 3.9% for 2023 and 2022, respectively. The average discount for PIPE transactions was relatively flat between 2024 and 2023.
This trend may reflect marginally stronger investor sentiment for companies that are not subject to the “baby shelf” rules or transactions that do not required delayed liquidity through registration rights. See the section on “Security Price” for more information.
– Insiders participated in fewer transactions. In another signal that markets may be warming up again, in 2024 company insiders (e.g., directors, officers, and affiliates) participated in 18.5% of the deals reviewed, compared to 27.6% in 2023. The decrease was more pronounced among technology transactions, which saw a 50% decrease in the percentage of deals with insider participation compared to the prior year.
In challenged markets, insiders typically participate in more financings to help attract outside investors or simply to preserve the viability of a company. Conversely, a decrease in insider participation suggests an increase in the investment appetite of outside investors who generally present fewer reporting and approval requirements than when insiders are involved. See the section on “Types of Investors” for additional information.
On the topic of smaller company financings, we covered how the “baby shelf” limitation is measured in the context of an at-the-market offering in the September-October 2024 issue of The Corporate Counsel newsletter. That issue is available online to members of The CorporateCounsel.net who subscribe to the electronic format.
Here’s something Meredith blogged last week on DealLawyers.com: Some predicted the demise of SPACs after the new disclosure rules went effective last summer, but this Norton Rose Fulbright memo says companies looking to go public should be seriously considering a de-SPAC as a quicker, cost-effective way to go public during a limited IPO market. While it acknowledges that “regulatory loopholes were the founding principle of SPACs,” it argues that the new rules will improve the process and, by doing so, render SPACs “an even more appealing option.”
Here are a few of the benefits the article says the de-SPAC approach still offers versus IPOs:
– Price certainty: The price discovery process in a traditional IPO typically occurs one day prior to the IPO, at the conclusion of a six-month process of going public. The underwriters typically undervalue the company to provide an advantage to their traditional institutional clients. In contrast, the price discovery process in a SPAC merger typically occurs upfront, typically upon the signing of a term sheet, and is a bilateral negotiation between the SPAC and the target. This process frequently results in a higher valuation of the company.
– Timing: Usually taking 9 to 24 months, traditional IPOs expose businesses to a range of outside economic changes that could compromise valuation and lower investor appetite. The regulatory load related to IPOs, comprised of extensive SEC additional filings and compliance measures, further extends the time period it takes for a company to go public. On the other end of the spectrum, the likelihood of negative market conditions derailing the public listing process is significantly reduced by choosing to execute a SPAC transaction within a six-month window.
– Projections: Critics contend that SPACs are susceptible to inflated valuations due to the excessive scope for speculative projections they allow. Nevertheless, pro forma projections are indispensable for emerging companies that possess disruptive innovation and limited historical performance. In a traditional IPO, historical performance is predominantly considered. In contrast, SPACs allow companies to provide forward-looking projections, thereby being more attractive to such investors who attach premium to a company’s long term economic performance and growth. The problem is not the projections themselves, but rather the necessity for enhanced regulatory oversight to guarantee transparency—a matter that the SEC’s new regulations are attempting to resolve.
– SPAC Sponsors: SPAC sponsors will often raise debt or private investment in public equity (PIPE) funding in addition to their original capital to not only finance the transaction, but also to stimulate growth for the combined company. The purpose of this backstop debt and equity is to guarantee the successful completion of the transaction, even if the majority of SPAC investors redeem their shares. Furthermore, a SPAC merger does not necessitate an extensive roadshow to pique the interest of investors in public exchanges (although raising PIPE necessitates targeted roadshows). Sponsors of SPAC are frequently seasoned financial and industrial professionals. They may utilize their network of contacts to provide management expertise or assume a role on the board.
On Friday, the Corp Fin Staff published a statement to address the characteristics of stablecoins that would cause them to be – or not be – a “security.” Here’s the bottom line:
It is the Division’s view that the offer and sale of Covered Stablecoins, in the manner and under the circumstances described in this statement, do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”) or Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”).[5] Accordingly, persons involved in the process of “minting” (or creating) and redeeming Covered Stablecoins do not need to register those transactions with the Commission under the Securities Act or fall within one of the Securities Act’s exemptions from registration.
The statement is a true delight for anyone who considers themselves a “securities law nerd” – because it explains how the Staff applies the seminal cases of Reves v. Ernst & Young and SEC v. W.J. Howey Co. to stablecoins. The Staff first discusses characteristics that would weigh against a stablecoin being a “security”:
– Designed to maintain a stable value relative to the United States Dollar, or “USD,” on a one-for-one basis, at any time and in unlimited quantities
– Can be redeemed for USD on a one-for-one basis (i.e., one stablecoin to one USD); and
– Backed by assets held in a reserve that are considered low-risk and readily liquid with a USD-value that meets or exceeds the redemption value of the stablecoins in circulation.
Additionally, the statement identifies marketing practices that would indicate the stablecoin isn’t being sold as a “security”:
– Marketed solely for use in commerce;
– Does not entitle a Covered Stablecoin holder to the right to receive any interest, profit, or other returns;
– Does not reflect any investment or other ownership interest in the Covered Stablecoin issuer or any other third party;
– Does not afford a Covered Stablecoin holder any governance rights with respect to the Covered Stablecoin issuer or the Covered Stablecoin; and/or
– Does not provide a Covered Stablecoin holder with any financial benefit or loss based on the Covered Stablecoin issuer or any third party’s financial performance.
On Friday, state intervenors in the litigation over the SEC’s climate disclosure rule filed a motion to hold the case in abeyance. The motion resulted from the Commission’s recent withdrawal from defending its rule. When the SEC officially dropped its defense, Commissioner Crenshaw objected to the decision on procedural grounds. Her point, basically, was that the SEC Commissioners must follow an administrative process to undo the agency’s rules, not just sit back, “rooting for the demise of this rule, while they eat popcorn on the sidelines.” She stated:
If the agency chooses not to defend that rule, then it should ask the court to stay the litigation while the agency comes up with a rule that it is prepared to defend (be it by rescission or otherwise, but certainly in accordance with APA mandates). At the very least, if the court continues without the Commission’s participation, it should appoint counsel to do what the agency will not – vigorously advocate in the litigation on behalf of investors, issuers and the markets.
So now, someone other than the SEC has asked the court to suspend the litigation – the 18 states that had previously intervened to defend the rule. This September 2024 explainer from the NYU School of Law about the role of states as amici and intervenors points to litigation over the Affordable Care Act as an example of state intervenors keeping a rule alive after the government dropped its defense due to a change in administration. It also reminds me of how the National Association of Manufacturers, as an intervenor, is the only party still defending the SEC’s 2020 proxy advisor rules.
At this point, the states in this case have simply requested the court to pause litigation until the SEC determines what action it will take on the rules (the motion also asks the court to direct the SEC to file status reports every 90 days). It’s not clear yet whether the court will grant that motion. And given other priorities and limited resources, I’m not holding my breath for the SEC to come up with an alternative rule that it’s prepared to defend.
Last Thursday, the Senate Banking Committee voted to advance the nomination of Paul Atkins to serve as Chair of the SEC, following the hearing that was previewed by John and summarized by Dave. The voting tally was 13 to 11, according to this Reuters article.
The article shares predictions on how Atkins would approach the PCAOB if/when confirmed. We’re tracking the nomination proceedings here…
When I mentioned in a blog post yesterday that more stock market volatility is undoubtedly on the way, I certainly did not envision a market rout of the scale that we experienced yesterday. As a student of finance (I have a Master’s degree in finance, believe it or not), I would have thought that the markets had already priced in the risks from tariffs to a great extent, given that trade policy was a major plank of President Trump’s campaign platform and he had in fact already imposed significant tariffs against major trading partners (not just remote islands where the only inhabitants are penguins). But unfortunately, markets do not operate with the ruthless efficiency that was touted in my finance textbooks and are instead fragile creatures susceptible to overreaction and panic when reality bites. The major stock indexes experienced their worst day since the depths of the pandemic in 2020, with the Dow Jones Industrial Average down 4% and the Nasdaq Composite down 6%. Strangely, we did not see the usual announcement from the SEC that is posted during market freefalls in which the agency assures use that it is closely monitoring markets.
I don’t know about you, but I have very distinct memories of the stock market routs that I have experienced over the course of my adult life. I was in college when the infamous “Black Monday” crash occurred on October 19, 1987. It was cataclysmic in its scale, with the Dow Jones Industrial Average dropping 22.6% in a single trading session, representing the largest stock market rout since the Great Depression. Next up was the bursting of the dot.com bubble in the early 2000s, which was much more of a prolonged form of torture. I was in private practice at the time and wondering where my next deal was going to come from, but then the corporate scandals came along and I was very busy for the next couple of years. And then of course there was the 2008 financial crisis, which prompted a prolonged market collapse where the Dow Jones Industrial Average fell by 53 percent between October 2007 and March 2009, as we all teetered on the edge of the economic equivalent of “nuclear winter.” In more recent memory, we experienced the terrifying market descents that arrived with the realization of the scope and impact of the COVID-19 pandemic and the measures taken to prevent the spread of the disease, which at the time seemed like something approaching “end of days.” In all of these cases, the markets eventually dusted themselves off and got back up to continue their ascent. Sometimes it took only a few days, and sometimes it took years. Let’s hope that this time we are in the “only a few days” category.
In the meantime, public companies of all shapes and sizes are scrambling to come up with a game plan for addressing the new market and economic environment that is brought about by the shift in global trade policy. Here are five key considerations from my perspective:
1. The impact of the tariffs, including the potential for supply chain disruptions and the closing of existing global markets, should be assessed quickly so that the uncertainty can be addressed in upcoming earnings releases, earnings calls and SEC filings. For some companies, it may be necessary to accelerate the earnings process or schedule ad hoc presentations to address investor concerns as quickly as possible. In the meantime, companies should be cognizant of Regulation FD when communicating with investors and analysts who are seeking immediate answers through one-on-one communications. Many companies will likely need to revisit their earnings guidance for the year, and those revisions will need to be addressed quickly in upcoming earnings communications. In prior periods of significant economic uncertainty (such as during the COVID-19 pandemic), many companies were forced to suspend or discontinue their guidance, given the difficulty in forecasting future performance.
2. Companies are obligated to address in the MD&A “known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations” and “known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.” I would say that these tariff actions fall squarely in the “known trends and uncertainties” category, so even though they go into effect in the current quarter, companies will need to address the impact of the tariffs and the other potential collateral consequences in SEC filings covering the recently ended quarter. Disclosures in SEC filings should be closely aligned with the messaging in the company’s earnings release and earnings call and any other public statements on the topic.
3. Companies will need to carefully assess their liquidity and capital needs in light of the potential for continued volatility in the markets, the potential impact of the global trade situation and the prospect of an economic recession. There may be opportunities to advantageously access the debt capital markets or lending markets as interest rates continue to decline. As we last saw with the COVID-19 pandemic, when faced with significant uncertainty, companies often shift into a cash preservation mode, and thereby delay or abandon plans for major capital expenditures, acquisitions, etc.
4. Many companies will inevitably consider ways to prop up their stock price, given the profound market drop that we experienced yesterday. During the early days of the COVID-19 pandemic, share repurchase programs proliferated as companies sought to stem the tide of stock price declines. A significant challenge for companies at this particular point in time is that they are likely in possession of material nonpublic information about their completed fiscal quarter (and potentially the impact of the new tariffs), so unless they had put a Rule 10b5-1 plan in place prior coming into possession of that information, such companies will not be able to enter the market to repurchase their own securities pursuant to a pre-existing share repurchase program or under a newly-established program until the material nonpublic information is disclosed. Those companies that do not currently have a share repurchase program in place may wish to get the board to approve one, so that it could be announced when the company releases its earnings. In evaluating whether to repurchase shares in an effort to support the company’s stock price, companies should carefully consider their liquidity needs and whether the cash directed toward share repurchases is better preserved or directed elsewhere during this time of significant uncertainty.
5. A prolonged decline in stock prices and uncertainty about the ability to meet financial objectives due to external factors can wreak havoc on equity and incentive compensation programs. Companies will inevitably struggle with how to properly incentive their executives and employees during the course of turbulent market and economic conditions. In my opinion, companies should resist the urge to consider option repricings, for all of the reasons that I lay out in the ariticle “Option Repricing: Are You That Deparate?” in the May-June 2022 issue of The Corporate Executive. Similarly, companies should think twice about “moonshot awards” as a means to retain executives, as a I discuss in the articles “To the Moon and Back: A Reflection on ‘Moonshot Awards’” in the July-August 2022 issue of The Corporate Executive and “Houston, We Have a Problem: When ‘Moonshot’ Awards Come Back to Earth” in the May-June 2024 issue of The Corporate Executive. Depending on how all of this plays out, companies may need to revisit their incentive compensation programs so that they can continue to retain talent during tough times, often in ways that prove to be unpopular with the proxy advisory firms and institutional investors. Finally, companies should be monitoring any situations where executives have pledged a significant amount of their stock. As you may recall, during and after the financial crisis, the stock market rout triggered forced sales of company securities for executive officers and directors of public companies, resulting in high-profile meltdowns at some major companies. For more on this topic, check out my article “Hedging and Pledging Revisited in Volatile Markets” in the May-June 2022 issue of The Corporate Executive.
This week on the Proxy Season Blog, Liz notes a trend that has emerged thus far in this proxy season where we are seeing “unprecedented” withdrawal rates for environmental and social shareholder proposals. Liz notes that the Staff’s publication of Staff Legal Bulletin No. 14M earlier this year may have something to do with an increased propensity on the part of the proponents to withdraw these types of proposals. A new ISS-Corporate analysis of 295 shareholder proposals on E&S topics submitted to companies year-to-date in 2025 notes:
While the outcome of 72% of these proposals remains pending, a review of those with a finalized status (voted, withdrawn, omitted) reveals significant shifts in both proponent behavior and the SEC’s response to no-action requests from companies. Excluding pending proposals, proponents have withdrawn 95% of requests focused on environmental issues and 62% of requests focused on social issues (excluding those related to lobbying and political contributions) – an unprecedented withdrawal rate.
The ISS report goes on to note:
This heightened expectation for proposal omissions is evident in the review of proposals focused on lobbying and political contributions transparency. Between 2015 and 2024, only 32 of 915 such proposals were omitted due to a no-action request. So far, in 2025, 71% of these requests have been omitted, signaling a clear shift in the SEC’s approach and enforcement under its new guidance.
These observations signal a potentially significant shift in the shareholder proposal landscape. We will continue to monitor these developments as the proxy season unfolds.
We have covered in this blog last week’s enactment of Senate Bill 21, which makes several significant changes to the Delaware General Corporation Law. The amendments address safe harbors for transactions involving interested directors or officers or controlling stockholders and also impose limits on stockholder books and records inspection demands.
The law firm memos have been rolling in on this topic, and you can read all of the important insights that those memos provide in our “Delaware Law” Practice Area. Check it out today!