Companies Test New IPO Workarounds Amid Shutdown

Watch Companies Test New IPO Workarounds Amid Shutdown - Bloomberg on Dailymotion

Transcript

00:00So the SEC is shut down right now, but companies looking to go public do have some options.

00:05What are they? The main workaround is removing so-called delaying amendment. What that basically

00:11means is normally you need the SEC to be open and operating to declare your S-1 effective so you can

00:16sell shares. The way that you can work around that is by removing the delaying amendment, which means

00:2120 days from that filing. You cannot change your filing, but then it would be deemed effective. You

00:26could go public shortly thereafter. So that's what we're seeing a number of companies being forced

00:31to do. So that's the main strategy. The SEC did relax rules because when they are normally open,

00:36you would have to have a fixed number of shares and a fixed share price. They amended that so now

00:40you could have a range. So we're seeing companies taking advantage of that. So it's more akin to a

00:45normal IPO, but you're exposed to the market for 20 plus days as opposed to normally seven.

00:50What's the downside of not including a specific price as opposed to a price range? Who feels it

00:55the most? Well, you need a range normally to kind of create that optionality, as bankers would say.

01:00You can price at the high end or low end and you have some market receptivity. When you're forced

01:04to have a set price, companies don't really like that because you can't kind of work around that.

01:09You can't be malleable. And the big vision is when you have a price range is that you at least are

01:13showing Wall Street what you expect to be worth. And maybe you can walk them up to a valuation or walk

01:18them down as opposed to, again, in the olden times, if you're stuck, you're kind of stuck.

01:22Are there any companies that are waiting until the shutdown ends so they can go back to the way

01:26that they're supposed to roll out an IPO? They're saying, you know what, these unconventional

01:29workarounds are maybe too much for us. We'd rather just wait.

01:33That's certainly a topic of conversation. When we talk to bankers, they're saying we have a number

01:36of companies that we're looking to go pre-Thanksgiving. We had reported that Medline could

01:40raise $5 billion in IPO. Still seems to be kind of working through what that could look like if they

01:45take advantage of this opportunity. The big thing is that if you are a company whose quarter ends at the

01:51end of September, your financials go stale November 11th, which means you have to be on the road right

01:57now. That's why we saw a number of these companies doing this Thursday, Friday of last week, because

02:01this is kind of your only opportunity. Otherwise, you need to get those financials audited. And then

02:05you're really looking post-Thanksgiving. Things get a little wonky, especially at a year that a lot

02:10of ECM investors have made money. They don't really necessarily want new deals the first two weeks of

02:14December. Yeah, absolutely. And it might just be a better thing for them to wait until the new year

02:18begins. These workarounds that have been created, what's the likelihood that they will stay in place

02:25once the shutdown ends, do you think? I think they'll go back to the old kind of way where you

02:29have the delaying amendment, because I think most folks in the ECM world like how it operates. They

02:34like knowing that you only have seven days where you're exposed to the price. You're meeting with

02:37investors. It's just kind of a weird place. It'll be interesting to see how these deals price.

02:42Navon is on the road, tighter range, beta technologies, a wider range, but has cornerstone investors

02:47signing up. So different strategies. So we're going to see how those play out right around

02:52Halloween and kind of the first few days of November to see how these deals get done,

02:56where they value at and how they trade after.