How to engage with investors in the age of the activist: Private Equity’s expectations

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THIS IS PART SIX OF A SERIES: read Part Five.


QUESTION > How have private equity firms and other alternative investors changed the expectations for shareholder communications?

Jason M. Halper > In some ways, you can look at PE firms as the original activists, going back to the 1980s with companies such as KKR. But they had a different model, which was leveraged buyouts, taking companies private, reforming them and then going public with them again. Many times, the rationale was similar to what’s happening with activists, however – the PE firm would argue that the company was underperforming and would do better under different management.

In the current era, I think PE firms and other alternative investors come into this in a few different ways. You could have a private equity fund either aligned with an activist or acting as a white knight or a white squire for a company. For instance, you could theoretically place a large block of stock with a PE firm to deter an activist. So I think PE firms and non-activist hedge funds are potential wild cards. Ultimately, if you know some significant PE firms are in your space, it pays to engage with them on a regular basis, because, firstly, they could be adverse to you in some way in the future, or secondly, they could be potential allies.

Kai Haakon E. Liekefett > PE investors are typically welcomed with open arms by companies, for a number of reasons. For starters, they have capital that companies may want. Also, most PE funds are prohibited legally in their formation documents from going hostile or activist against companies, so it’s safe to talk to them. This is changing on the margins, but the vast majority of PE funds still have a prohibition on waging proxy contests.

As for hedge funds and other alternative investors, what we tell our clients is that when you receive a request for a meeting from an investor you don’t know, we look hard at that investor’s history and try to determine whether it has a record of activism or of otherwise making life difficult for companies. That doesn’t mean we would advise clients not to meet with them – in most cases, we advise them to meet even if it is a known bomb-thrower, because it’s always better to know your enemy than to stiff-arm them. We are also seeing a lot of first-time activists in recent years, so looking at activism history doesn’t necessarily tell you whether a fund is going to be an activist going forward.

Lex Suvanto > The thing about PE is that you know PE firms are inherently long-term investors. They may bring a different kind of rigor in their investment analysis, or a different approach to making an investment in a company. But in reality, they don’t change how companies communicate, because they still need a strong investor base and a strong investor story, and they still need to maximize shareholder value.

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“Looks great, OK to file. I appreciate your quick turnaround and great work as always!”

Fast turns and spot-on execution has redefined Vintage, helping us to be a top three solution in North America. Our work is highlighted every Monday in our “IPOs and Transactions of the Week” blog and email.  Importantly, our week’s success is further highlighted (and celebrated) by the appreciative notes our operations people receive each day from our clients.

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We can’t not share the good news (anonymized for privacy). Sales can offer you full named references.

Here is just a handful of the week’s notes: 

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Kudos to our Typesetting team

Thank you and the whole Vintage team for such excellent service (always) and to being so responsive to all of my requests.

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.Kudos to our IPO team

Once again, you guys have been awesome to deal with!!!

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.Kudos to our XBRL team

I thought your team did an excellent job.  Responsive and timely.

 


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.Kudos to our EDGAR team

I appreciate you and your team for scrambling to get this filed for me. Thanks!

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.Kudos to our EDGAR team

Your professionalism and timeliness is much appreciated. [Our Vintage manager] has been great; extremely responsive and really detailed in his explanations.

Thanks very much, Vintage!

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.Kudos to our Print team

Our clients have never been in better and more capable hands, and your team has displayed an exceptional level of customer service, professionalism and competency.

I have the utmost confidence when I recommend Vintage to our clients for their printing needs, and I don’t have to worry about anything falling through the cracks

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Our rebrand was not just a logo change – it was a systemic and cultural reform throughout our operations. Our president, Liam Power, challenged his team to deliver the industry’s intelligent value, measured as fast turns and spot-on execution of services. You can meet Liam Power on this video. 

Thanks to our experts for delivering intelligent value!

Reg A+ worksheet walks emerging growth companies through registration process

In advance of today’s Bloomberg webinar (Reg A+ vs. conventional IPO), it may be helpful to have the Regulation A+ Worksheet for Form 1-A in close proximity.

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This downloaded PDF will walk you through the information and data the SEC requires if you are considering a Reg A+ registration.

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Since the “revamp” of Reg A into Reg A+, 105 companies filed initial 1-A offering statements with the SEC. Compare that with 116 conventional S-1 IPO registrations… and it is clear that Reg A+ is escalating as a viable option.

Is it the right option for your client or company? Tune in today at one o’clock. Experts from PWC, McDermott Will & Emery and our own beloved Gordon Ruckdeschel will help you decide.

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FREE WEBINAR: Regulation A+ or Traditional IPO ~ Which will best help you grow?

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The new Regulation A+ went into effect in June of 2015 with the intent of reviving the smaller IPO market by allowing companies to accept funds from both accredited and non-accredited investors. This has provided a new option for companies to raise capital for growth.

There are a variety of differences between making a Regulation A+ Offering and making an Initial Public Offering in order to raise capital, and each type of offering can have benefits for different types of companies.

Securities lawyers are eligible for CLE credit!

Join us for this 60-minute webinar, where our panelists will discuss the advantages and disadvantages of making a Regulation A+ Offering versus a traditional Initial Public Offering, what to take into consideration when determining which type of offering to make, and the main differences in the processes of making each type of offering.

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Get detailed “how-to” advice from our experts.

Educational objectives:

  • Gain an overview of Regulation A+ offerings and traditional IPOs
  •  The benefits and disadvantages of each type of offering
  • Strategies and primary considerations when determining which type of offering to make

Who would benefit most from attending this program?

Securities attorneys; practitioners advising companies of all sizes; CFOs at companies of all sizes; finance and accounting professionals.


Our expert panel:
GARY EMMANUEL, PARTNER, MCDERMOTT WILL & EMERY

Mr.Gary Emmanuel focuses his practice on corporate securities matters.  With over 15 years of experience, Mr. Emmanuel represents both domestic and foreign companies that are navigating the process of capital raising, including initial public offerings, registered direct offerings, follow-on offerings, private placements, private investment in public equities (PIPEs) and bridge financings. He has worked extensively with biotechnology and other life science companies, both as company counsel and as underwriter’s counsel.  He advises companies on issues relating to disclosure, periodic reporting, corporate governance, American Depositary Receipt (ADR) programs, and the rules of the NYSE MKT, NYSE and NASDAQ. He also counsels companies in a wide variety of corporate transactions including licensing, reverse mergers, acquisitions and joint ventures.  Mr. Emmanuel previously served in the Military Court of Appeals of the Israel Defense Forces during his army service and holds the military rank of legal officer.

Mr.Emmanuel is admitted to practice in New York and Israel.  He earned his LLB, with honors, from Queen Mary University of London and his LLM from Yeshiva University – Benjamin N. Cardozo School of Law.


DAVID ETHRIDGE, MANAGING DIRECTOR, DEALS & U.S. IPO SERVICES LEADER, PWC

Mr.David Ethridge is the Managing Director in the firm’s Deals practice and U.S. IPO Services leader. He helps PwC clients prepare for accessing the equity capital markets through an IPO, advising them throughout the life of the IPO process, from pre-IPO readiness assessment to planning, the offering process, potential pitfalls and challenges and beyond.

Mr.Ethridge is a veteran IPO professional with more than 25 years of experience built around the equity capital markets, advising clients to globally on their plans to access the U.S. equity markets via IPOs, follow-on offerings, Convertibles, registered direct, and PIPEs. Prior to his role at PwC, he led the New York Stock Exchange (NYSE) Capital Markets practice for five years, a role which follows 20 years of experience in investment banking. Under his leadership, the NYSE became the overall leader both in the U.S. and globally for IPOs, most notably in the technology sector. Throughout his career, he has advised and executed over 100 IPOs; including helping execute the largest IPO in history when he was leading the NYSE team.

Mr.Ethridge received a M.B.A from Harvard Business School and a B.A. in economics from Davidson College.


GORDON RUCKDESCHEL, VICE PRESIDENT, OPERATIONS, THE VINTAGE GROUP

Mr. Gordon Ruckdeschel has over twenty years of experience in the mutual fund and EDGAR/financial services industry.  He currently manages Operations for Vintage (a division of PR Newswire), including the full service EDGAR, XBRL, typesetting and print capabilities across Vintage’s three practice areas (Capital Markets, Corporate Services and Funds & Institutional Services).  Previously, Mr. Ruckdeschel headed up the organization’s Investment and Structured Finance account team.  He is continually learning and managing new projects, most recently working with staff and clients on Regulation A+ filings.

IPOs and Transactions: July 18 – 22 / plus Bloomberg Reg A+ webcast invite

There were 27 transactions filed with the SEC last week.

Congratulations to all of the corporations and law firms that selected our transactions services last week including Regenerex Biopharmaceuticals Inc. w/ Fredrikson & Byron PA, Net Element Inc. w/ Snell & Wilmer LLP, Research Solutions Inc. w/ Stubbs Alderton & Markiles LLP, and Reg A+ registration for Ziyen Inc.

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Law firm / advisors Registrant Symbol Form Industry
Cahill Gordon & Reindel LLP IRONSHORE INC ~ S-1 ~
Celsius Holdings Inc. CELSIUS HOLDINGS INC CELH 10-12G ~
Dechert LLP NB CROSSROADS PRIVATE MARKETS FUND IV HOLDINGS LLC ~ N-2 ~
Dinsmore & Shohl LLP LCNB CORP LCNB S-3 Banks
Ellenoff Grossman & Schole, LLP OPTEX SYSTEMS HOLDINGS INC OPXS S-1 Optical
EPIC Medicor Corp EPIC MEDICOR CORP ~ 1-A Fabric mills
Federated Investors Funds FEDERATED PROJECT & TRADE FINANCE TENDER FUND ~ N-2 ~
Fellheimer & Eichen LLP OPTEX SYSTEMS HOLDINGS INC OPXS S-1 Optical
Fredrikson & Byron, P.A. REGENERX BIO- PHARMACEUTICALS INC RRX S-1 Pharma
Greenberg Traurig, LLP INDUSTRIAL PROPERTY TRUST INC ~ S-11 ~
Helene Holloman Chin El HELENE HOLLOMAN CHIN EL ~ 10-12B ~
Hogan Lovells US LLP IRONSHORE INC ~ S-1 ~
Hogan Lovells US LLP BAR HARBOR BANKSHARES BHB S-4 Banks
Hogan Lovells US LLP EASTERLY ACQUISITION CORP EACQ S-4 ~
K&L Gates LLP BAR HARBOR BANKSHARES BHB S-4 Banks
Kilpatrick Townsend & Stockton LLP PRUDENTIAL BANCORP INC PBIP S-4 Banks
Kutak Rock LLP BEAR STATE FINANCIAL INC BSF S-3 Banks
Latham & Watkins LLP SUNOCO FINANCE CORP SUSP;SUSS S-4 Petroleum
Littman Krooks, LLP ACTIVECARE INC ACAR S-1 Medical equipment
Lucosky Brookman LLP ACTIVECARE INC ACAR S-1 Medical equipment
Morgan, Lewis & Bockius LLP VALERITAS HOLDINGS INC ~ S-1 Retail
Nelson Mullins Riley & Scarborough LLP STRATEGIC STORAGE TRUST IV INC ~ S-11 ~
Orrick, Herrington & Sutcliffe LLP EASTERLY ACQUISITION CORP EACQ S-4 ~
Silver, Freedman, Taff & Tiernan LLP PRUDENTIAL BANCORP INC PBIP S-4 Banks
Simpson Thacher & Bartlett LLP PEOPLE’S UNITED FINANCIAL INC PBCT S-4 Banks
Snell & Wilmer L.L.P. NET ELEMENT INC NETE S-1 Computer & data base processing
Stubbs Alderton & Markiles, LLP RESEARCH SOLUTIONS INC RSSS S-1 Business support
VCorp Services, LLC GLOCORP INC ~ S-1 ~
Wachtell, Lipton, Rosen & Katz PEOPLE’S UNITED FINANCIAL INC PBCT S-4 Banks
Wilmer Cutler Pickering Hale and Dorr LLP ARGOS THERAPEUTICS INC ARGS S-3 Pharma
Wilson Sonsini Goodrich & Rosati, P.C. MOGULREIT I LLC ~ 1-A REIT
Womble Carlyle Sandridge & Rice, LLP QORVO INC QRVO S-4 Semi-conductors
Ziyen Inc ZIYEN INC ~ 1-A ~
Zysman Aharoni Gayer and Sullivan & Worcester LLP LABSTYLE INNOVATIONS CORP DRIO S-3 Surgical & medical instruments

Whether in-house, your-house or 100% virtual… click here to discover why we are the intelligent value for both traditional and confidential IPOs.

Post IPO, thousands of organizations count on us to assure regulatory compliance and target new investors. Click here and opt-in to receive this weekly summary via email.

Click here to review the week’s underwriters.

Have a great week.

 

IPO Underwriters of the Week: July 18 – 22 / plus Bloomberg Reg A+ webcast invite

Congratulations to the corporations and underwriters that worked with our transaction services team. Whether in-house, your-house or 100% virtual… click here to discover why we are the intelligent value for both traditional and confidential IPOs.

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Registrant Form Underwriter 1 Underwriter 2 Underwriter 3 +
IRONSHORE INC S-1 Citigroup Global Markets, Inc. J.P. Morgan Securities LLC Merrill Lynch, Pierce Fenner & Smith Inc. / UBS Securities LLC
NET ELEMENT INC S-1 ESOUSA Holdings, LLC ~ ~
ACTIVECARE INC S-1 Joseph Gunnar & Co., LLC ~ ~
OPTEX SYSTEMS HOLDINGS INC S-1 Joseph Gunnar & Co., LLC ~ ~

Post IPO, thousands of organizations count on us to assure regulatory compliance and shareholder communications.

Click here to review the week’s IPOs and active securities law firms.

Have a great week.

Prominence is the key concept with the SEC’s new guidance for earnings releases

This earnings season will be the first since the SEC’s May 17th revised C&DIs (Compliance and Disclosure Interpretations) guidance regarding the presentation of GAAP and non-GAAP measures in earnings releases.

SEC Chair White recently spoke of having noteworthy concerns about issuers who present non-GAAP measures “too far and beyond what is intended and allowed by the SEC’s rules” and “troublesome practices which can make non-GAAP disclosures misleading.” Lets tag them as the bad non-GAAPles.

gaaplesThe SEC is aware that just a few bad non-GAAPles have ruined the whole batch

To address this, the SEC has issued new and updated CD&Is regarding non-GAAP measures. The new and revised C&DIs do not represent a formal rule change. However, they are a warning signal to issuers and absolutely demonstrate the SEC’s concerns regarding inappropriate adjustments presented by companies on their non-GAAP financial measures. The SEC is watching earnings releases closely.

Much of the new guidance is strategic if not “philosophical” around the actual measures that an issuer uses to calculation their earnings and guidance. That’s for the Audit Committee to work on. Tactically, the SEC called-out some non-GAAP disclosure presentation practices that are common in earnings releases. The bottomline is that issuers cannot disclosure their results in manner that places undue prominence on the non-GAAP numbers.

“Prominence” is the key concept here. Earnings release practices that the SEC has specified as non-acceptable include:

  • Presenting a non-GAAP measure before its most directly comparable GAAP measure – including within an earnings release headline or caption
  • Presenting a non-GAAP measure using a style of presentation (e.g., bold, larger font) that emphasizes the non-GAAP measure over the comparable GAAP measure
  • Omitting comparable GAAP measures from an earnings release headline or caption that includes non-GAAP measures
  • Presenting a full income statement of non-GAAP measures or presenting a full non-GAAP income statement when reconciling non-GAAP measures to the most directly comparable GAAP measures
  • Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence.

To mitigate risk of non-compliance, issuers that plan to present non-GAAP financial measures in their earnings releases may need to modify their disclosure practices. Chair White strongly urged issuers to consider the updated guidance and “revisit their approach to non-GAAP disclosures.”

Although the SEC is uber-focused on earnings releases with this new guidance, the SEC also urges issuers to uphold these new guidelines in their non-earnings (EDGAR filed) shareholder communications such as in presentations to investors and analysts, annual reports and IR websites. Issuers should communicate with shareholders in a consistent manner – the stock narrative told outside of the SEC filings should be the same as the narrative found within in the issuer’s SEC filings.

By now, hopefully IROs have had in-depth conversations with their corporate securities lawyers. NIRI members should listen to the educational webinar.

Hey WSJ, it’s 2016. Time to stop calling individual investors ‘Mom-and-Pop.’

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On Tuesday, The Wall Street Journal ran an article titled Companies Forgot About Mom­-and-­Pop Investors …Until Now. You can read it here.(if you are subscribed)

Last Thursday’s VirtualInvestorConferences.com event brought 1,500 investors online to listen to CEO’s as well as to an education breakout session on the impact of Brexit for individual investors. During these online roadshow presentations, over 300 questions were asked by investors directly to CEOs.

Does this type of activity fit the Grant Woodesque “Mom-and-Pop” narrative?

No, it does not – nor has it ever since we launched our online non-deal roadshow portal in 2010. 65 conferences ago. Since then, we’ve had 40K plus investors log-in and pose questions to hundreds of companies, ranging from mega-cap to new generation RegA+ registrants.

What we have experienced since 2010:

  • We refer to this audience as individual investors or, if feeling casual, “Main Street” investors juxtaposed to “Wall Street.”
  • We dropped the label “retail Investors” as it implied a “shopping mentality” rather than a strategic persona.
  • We changed the name of the portal from “retailinvstorconferences… to virtualinvestorconfeences to demonstrate the leveling of all investors.
  • Since 2012, our exclusive study of “How Investors Consume Investor Relations Content” has received 40,000 unique answers from individual investors. You can request the 2016 report here.
  • A major stock exchange and a global ADR bank, both recognizing the impact any investor can have on a stock, use our portal to bring their listed clients to the online investing public.

In defense of the WSJ, their article was great. It spoke about how individual investors can be a critical constituency during a contested proxy battle. It reinforces the point that even though Main Street investors are a small percentage of your holding parties, taking a small effort to build a relationship with them may save management. Individual investors generally vote with management.

Looking for a smart example of corporate dedication towards individual investors? AFLAC has presented each and every quarter since 2010. It’s a steadfast tile in their shareholder communications mosaic.

Use the form on this page to learn more. Be sure to select “virtual investor conferences.”

REPORT: 90% of institutional investors visit IR websites before they take a stock position

From a simple marketing perspective, an investor relations website is not dissimilar to a trade show booth. You never know when a prospect is going to walk by and make a purely visceral judgment. In the case of an institutional investor, it must be a surface-level, emotional “kicking-of-the-tires’ as they already have access to all your past performance data as well as in-depth analysts’ reports. They want to understand how you represent your “financial brand.”

Combine this information with the first question in our study, and there is no question about the need to have an IR website to build confidence with Wall Street.

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Here are some examples of the sites we host: we can build a variety of design formats – at a variety of service packages to fit into a budget.

LEARN MORE INCLUDING VERBATIM “OTHER” COMMENTS: Our new “Shareholder Confidence 365 Study booklet is now available. You can order a printed copy here.

 

IR should not be concerned about lack of social media control – but of consistency

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This is more of an update rather than a core discussion. By now, investor relations have expressed their collective “meh” for using social media with any of the verve demonstrated by their comrades on PR or marketing teams. Mostly, the IR consensus is that their audience is not using social media as a corporate information point.

The attitude often written in this blog towards IR and social media has been steadfast: it’s a tile in the mosaic of shareholder communications.

To keep on the topic from the headline above, this discussion hits on the SEC’s 2013 guidance accepting social media as a Reg FD disclosure point. This month, there are two wrinkles that have impact on “if” social media is a tool in a corporate disclosure policy:

Facebook…

…has adjusted their algorithm “to help make sure you don’t miss the friends and family posts you are likely to care about, we put those posts toward the top of your News Feed.”

  • This means any consistent posting to Facebook is effectively annulled. Facebook is not a linear time-based news feed. You can never prevent – or confirm – that Investor A is not seeing your news before Investor B. This may not be selective disclosure by intent, but is it rather flibberty jibberty.

Yahoo!Finance…

…has removed Twitter and StockTwits from their newly designed portal. This is disappointing for a few reasons:

  •  The sheer amount of $CASHTAGGED traffic of your news and shareholder-shared discussions will noticeably drop. Our weekly IPO traffic has already experienced that, as we use $cashtags weekly.
  • The “conversations,” although labeled with a social media $cashtag seem to simply be the Yahoo chat boards – which, as always, are ripe with unmonitored pump-and-dump…
  • …which StockTwits did not allow in their feed. In fact, they proactively police their feed/portal. Their members are passionate day-traders, not pumpers.

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Neither of these two points will have any meaningful impact on most IR teams. However, it does clearly demonstrate that social media platforms are independent businesses – and their businesses are NOT interested in consistent – not to mention simultaneous – disclosure of material information to shareholders.

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