Tag: IPOs

On Secondary Buyouts

François Degeorge is Professor of Finance at the University of Lugano This post is based on an article authored by Professor Degeorge; Jens Martin, Assistant Professor of Finance at the University of Amsterdam; and Ludovic Phalippou, Associate Professor of Finance at Saïd Business School, Oxford University.

Twenty years ago, private equity (PE) firms seeking to exit sold their portfolio companies to another company in the same industry or organized an IPO. Nowadays, 40 percent of PE exits occur through secondary buyouts (SBOs), transactions in which a PE firm sells a portfolio company to another PE firm. The rise of SBOs has elicited concerns among PE investors (the limited partners with stakes in private equity funds): Does the rise of SBOs mean that PE firms have run out of investment ideas? Do SBOs create or destroy value for investors? Our paper, On Secondary Buyouts, forthcoming in the Journal of Financial Economics, provides answers to these questions.


ISS Proposed 2016 Policy Changes

Howard B. Dicker is a partner in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication by Mr. Dicker, Lyuba Goltser, and Megan Pendleton. The complete publication is available here.

Yesterday [October 27, 2015], Institutional Shareholder Services released its key draft proposed proxy voting policy changes for the 2016 proxy season. ISS is seeking comments by 6:00 p.m. EDT on November 9, 2015. ISS expects to release its final 2016 policies on November 18, 2015. [1] The policies as updated will apply to meetings held on or after February 1, 2016.

Proposed Amendments to ISS Proxy Voting Policies for 2016

ISS’s proposed voting policy changes for U.S. companies would:


Building a Dynamic Framework for Offering Reform

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent Keynote Address at the 47th Annual Securities Regulation Institute. The full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am very pleased to be here to help kick off the 47th Annual Securities Regulation Institute. As some of you know, I am no stranger to this program, nor is the SEC staff. I have participated since my early days as U.S. Attorney, and its tremendous success is largely due to its tireless organizers. For many years, that work was led by Anita Shapiro, who is now the President of PLI, along with Laura Shields. Laura has now taken over from Anita, and she will surely continue the program’s record of excellence. Thank you both for all that you do to make this program such a great one year after year.

I have selected a topic that I think is well-suited for a conference of such endurance and importance: how the Commission is building a more proactive and responsive regulatory framework to better assess the impact of regulatory changes on investors and issuers over time in the context of securities offerings. As your opening panelists will no doubt discuss, this important area has seen tremendous regulatory change over the last ten years, including significant new rules in the past year.


ISS Global Policy Survey 2015-2016

Stuart H. Gelfond is a partner in the Corporate Department at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank publication authored by Mr. Gelfond, Amy L. Blackman, Donald P. Carleen, and Jared Heady.

Recently, Institutional Shareholder Services Inc. (“ISS”) released the results of its global policy survey for 2015-2016 (the “Survey”). [1] The Survey reflects the results of 421 responses from a combination of institutional investors, corporate issuers, asset managers, pension funds, mutual funds, endowments and others. Each year, ISS typically considers the results of its annual global policy surveys when formulating proposed amendments to its Proxy Voting Guidelines. Below, we discuss some of the highlights of the Survey which may be a prelude to changes to be made by ISS to its Proxy Voting Guidelines in its next update.


Materiality as Pleading Obstacle

Brad S. Karp is chairman and partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum.

Claims brought under the Securities Act of 1933 (the “Act”) are typically challenging for defendants to dismiss. Some defendants may have affirmative defenses, but most of the Act’s provisions impose strict liability for alleged misstatements—meaning that a plaintiff need not plead scienter—and claims brought under the Act are subject to the relatively low pleading standard imposed by Federal Rule of Civil Procedure 8. Further, although plaintiffs suing under the Act must allege facts sufficient to show that the purported misstatements were material, courts are generally reluctant to dismiss for failure to plead this element because materiality is an inherently fact-bound inquiry.

Notwithstanding these principles, on September 29, 2015, the United States District Court for the Southern District of New York (Oetken, J.) dismissed a putative class action brought under the Act on the ground that the complaint’s materiality allegations failed as a matter of law. The opinion provides valuable insights on how to defeat other Act claims on similar grounds. [1]


Remarks on Small and Emerging Companies

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As you know, the term of this Committee expires September 24, 2015. The advice and expertise the Committee has provided to the Commission on a variety of issues over the last four years has been incredibly helpful to us. And, as today’s [September 23, 2015] agenda reflects, you are continuing those contributions. Your contributions have shown the importance of this Committee, and I am pleased to announce that the Commission is renewing its charter for another two-year term. The Commission will be selecting members and it is my hope that many of you will continue your service. I look forward to our continuing dialogue and being the beneficiary of your insight and suggestions.


The Disappearance of Public Firms

Gustavo Grullon is Professor of Finance at Rice University. This post is based on an article authored by Professor Grullon; Yelena Larkin, Assistant Professor of Finance at Penn State University; and Roni Michaely, Professor of Finance at Cornell University.

In our paper, The Disappearance of Public Firms and the Changing Nature of U.S. Industries, which was recently made publicly available on SSRN, we show that contrary to popular beliefs, U.S. industries have become more concentrated since the beginning of the 21st century due to a systematic decline in the number of publicly-traded firms. This decline has been so dramatic that the number of firms these days is lower than it was in the early 1970s, when the real gross domestic product in the U.S. was one third of what it is today.

We show that the decline in the number of public firms has not been compensated by other mechanisms that could reduce market concentration. First, private firms did not replace public firms, as the aggregate number of both public and private firms declined in over half of the industries, and the concentration ratio based on revenues of public and private firms has increased. Second, we examine whether the intensified foreign competition could provide an alternative source of rivalry to domestic firms, and find that the share of imports out of the total revenues by U.S. public firms has remained flat since 2000. Third, we show that the decrease in the number of public firms has been a general pattern that has affected over 90% of U.S. industries, and is not driven by distressed industries, or business niches that have disappeared due to technological innovations or changes in consumer preferences. Instead, it has been driven by a combination of a lower number of IPOs as well as high M&A activity.


Firms and Earnings Guidance

Kristian Allee is Assistant Professor of Accounting at the University of Wisconsin. This post is based on an article authored by Professor Allee; Ted Christensen, Professor of Accounting at Brigham Young University; Bryan Graden, Assistant Professor of Accounting at Illinois State University; and Ken Merkley, Assistant Professor of Accounting at Cornell University.

Understanding the formation of firms’ disclosure practices is of significant interest to regulators, managers, and investors. Anecdotal evidence and prior disclosure research generally conclude that firms’ current disclosure practices are often tightly connected to prior disclosure practices. However, prior disclosure practices must have a beginning in their own right, begging the questions of when and why disclosure practices begin. In our paper, When Do Firms Initiate Earnings Guidance? The Timing, Consequences, and Characteristics of Firms’ First Earnings Guidance, we examine when firms initiate earnings guidance (i.e., establish an earnings guidance policy) after an Initial Public Offering (IPO) and what factors are associated with the initiation decision.


Understanding the US Listing Gap

René Stulz is Professor of Finance at Ohio State University. This post is based on an article authored by Professor Stulz; Craig Doidge, Associate Professor of Finance at the University of Toronto; and Andrew Karolyi, Professor of Finance at Cornell University.

The number of publicly-listed firms in the U.S. peaked in 1996 at 8,025. In that year, the U.S. had 30 listings per million inhabitants. By 2012, it had only 13, or 56% less. Importantly, the decrease in listings occurred in all industries and across both the NYSE and Nasdaq. In our new working paper, entitled The U.S. Listing Gap, which was recently made publicly available on SSRN, we show that this evolution is specific to the U.S. Listings in the rest of the world, in fact, increased over the same period. The U.S. has developed a “listing gap” relative to other countries with similar investor protection, economic growth, and overall wealth. The listing gap arises in the late 1990s and widens over time. It is statistically significant, economically large, and robust to different measurement approaches. We also find that the U.S. has a listing gap when compared to its own recent history and after controlling for changing capital market conditions.


The Iliad and the IPO

Andrew A. Schwartz is an Associate Professor of Law at the University of Colorado Law School. This post is based on Professor Schwartz’s recent article published in The Harvard Business Law Review, available here.

Many public companies have shed takeover defenses in recent years, on the theory that such defenses reduce share price. Yet new data presented in my latest article, Corporate Legacy, shows that practically all new public companies—those launching their initial public offering (IPO)—go public with powerful takeover defenses in place, which presumably depresses the price of the shares. This behavior seems strange, as pre-IPO shareholders both have a strong incentive to maximize the value of the shares being sold in the IPO and are in position to control whether to adopt takeover defenses. Why do founders and early investors engage in this seemingly counterproductive behavior? In Corporate Legacy, I look to a surprising place, the ancient Greek epic poem, the Iliad, for a solution to this important puzzle, and claim that pre-IPO shareholders adopt strong takeover defenses, at least in part, so that the company can remain independent indefinitely and thus create a corporate legacy that may last for generations.


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