New Unregistered Offerings Make Gains While IPOs Decline

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By Che Odom

April 21 — Fewer and fewer U.S. companies are going public, while new exempt offerings created to encourage investment in small, growing businesses are gaining ground.

According to a recent projection of initial public offerings by Bloomberg Law Corporate Transactions, there may be only 88 completed IPOs this year, down from 213 in 2015 and 291 in 2014.

A contributing factor for the IPO freefall may be that smaller companies are opting for less risky capital raising under Regulation A Plus, attorneys involved in corporate capital formation told Bloomberg BNA.

Reg A Plus, which the Securities and Exchange Commission finalized last year, allows companies to raise up to $50 million in a 12-month period without registration under the 1933 Securities Act (58 SLD, 3/26/15).

Among other advantages, the new requirements—similar to IPOs—allow companies to offer shares to the general public and not just to accredited investors. Fees for the exempt securities also are much lower compared to traditional IPOs, and their ongoing disclosure requirements much less burdensome.

These factors are pushing smaller companies away from IPOs, Thomas G. Voekler, corporate attorney and managing partner of Richmond, Va.-based Kaplan Voekler Cunningham & Frank PLC, told Bloomberg BNA.

“The reforms to Reg A have allowed for a larger offering amount that allows for the costs associated with this type of offering to make sense,” Voekler said.

Small to mid-sized companies have been unable to access the capital markets other than through private placements because their lending relationships have been stretched to the limit and banks have had to deal with additional regulatory burdens, Voekler said.

Lookback at First Quarter IPOs

Gauging Popularity

Arizona carmaker Elio Motors Inc., Richmond-based real estate investment and management firm Allegiancy LLC and Washington, D.C.,'s FundRise LLC, a real estate crowdfunding platform, are among the companies to raise money through Reg A Plus.

However, the popularity of the new fund-raising method is hard to gauge, attorneys said.

“We have been tracking these companies, but until we get a chance to look through their periodic filings we will not be able to get an actual feeling of the velocity of fund raising,” Voekler, who counsels companies on Reg A Plus offerings, said.

Another attorney who works in the field of financing told Bloomberg BNA that it may be too early in the life of Reg A Plus to tell how popular it is. For one, companies utilizing the fund-raising method can delay making disclosures to the SEC, said the attorney, who asked for anonymity to avoid having her comments connected with any clients.

ABCs of Reg A Plus

The SEC finalized Reg A Plus in March 2015 under a directive in the Jumpstart Our Business Startups Act of 2012.

The new regulation expands the threshold for the exempt offerings to $50 million from $5 million, and allows companies to solicit interest from investors prior to making any SEC filings.

It also creates two tiers of offerings. The first tier includes offerings up to $20 million per year with no more than $6 million offered by affiliates of the issuer. Tier 2 includes offerings up to $50 million over the course of a year with no more than $15 million from affiliates.

These and other changes make Reg A Plus a more appealing option for small companies, Voekler said.

‘Main Street.'

Long gone are the days of $25 million to $200 million IPOs, as most companies won't consider that route unless they want to raise well over that amount, Voekler said. The large majority of companies are not looking for that much capitalization, he added.

Small to mid-sized companies, “the backbone of our economy,” can't access “the Wall Street IPOs,” he said.

The mini-IPOs under Reg A Plus are backed by smaller regional investment banks, making them a “Main Street” offering, Voekler continued. “At the smaller size, you will see much less institutional investing and have actual mom and pops able to invest directly into companies.”

Slow IPO Year

Meanwhile, the IPO numbers continue to shrink. A total of 13 IPOs priced in the first three months of this year, which is the lowest number of IPOs completed in the first quarter of a year since 2009, down 69.05 percent from the first quarter of 2015, according to a Bloomberg Law analysis.

The dollar value of total IPOs priced in the first quarter of 2016 was $1.42 billion, a 81.24 percent decrease from the $7.6 billion in the first quarter of 2015 and a 87.83 percent drop from $11.7 billion in the same period of 2014.

Selected IPO Activity by Industry

To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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