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TRENDSPOTTER: New Fundraising Opportunities Blow in with the Summer Breeze

WELCOME TO the first summer of the new century. The chill of winter is behind us, the sun is shining and windows are opening to let in fresh air. Will the change in season foster a change in financing opportunities? Quite possibly. Now you are probably shaking your head and wondering if I have ingested controlled substances. Fear not – all I have been doing is watching my screen and reading the news. What am I seeing and reading about?  Deals. Deals of all types: PIPEs (private investments in public equity), convertibles, both public and private, and filings for public secondary offerings.  

Now, let me throw some cold water before anyone starts jumping up and down. This does not mean that the financing window is completely open, but it is an indication that there is growing investor interest in the space. How did I come to this conclusion? By looking at the speed at which some of the PIPEs are being completed. Some deals have been closed in 48 hours or less. In reality these PIPEs are what used to be called “spot secondaries.” In other words, a bank’s institutional sales force makes a calling blitz to fund managers familiar with the company. They present the opportunity, including the proposed pricing and the time they expect the deal to close, and then they secure the order. So how do they pull it off?

With a bit of luck the investment bankers will be able to quickly generate a buzz around the company attempting to raise money. They do this by playing off the fact that the company they are trying to sell is already covered by respected analysts who likely have a following among institutional investors. Thus, a bank’s sales force will make calls to potential buyers who should already be familiar with the company’s story.

If the company has been proactive in visiting its institutional shareholders as well as new potential buyers, then the investment banker’s job is that much easier. It always helps if the company has presented its story at one or more national investor meetings (either sponsored by a bank or another entity). All of these factors allow the investment bank to more easily generate interest in the company and allow the company to show that it is executing its business plan as outlined during its IPO road show.

Now what? The company needs to file a “shelf” registration statement. What the company will be doing is registering new shares for sale. This process takes a little bit of time. The company and its attorneys prepare a document that is then filed with the SEC. With luck it will not be reviewed, but based upon my conversations with a number of companies, the examiners at the SEC are reviewing the filings. This will add to the time it takes for the registration statement to be declared effective. Once effective, the company does not have to sell any shares but the gears will be put in motion.

The downside of filing and having an effective shelf is that the process amounts to an announcement of an intention to sell shares (i.e. raise money). This can be a double-edged sword. It can cause downward pressure on the stock due to fears of dilution, though in the last few months this has not seemed to be the case. The positive is that the filing can land a company on people’s radar screens.

As I stated above investor interest in the market is growing. There is a fair amount of cash on the sidelines waiting to go to work. How do you get your share of that cash?  

Be proactive! Get out there, and tell your story. Start with your existing shareholders. Are any expressing interest in increasing the size of their position? Visit with new potential shareholders.  With some work, you might be able to put a deal together by yourself. But don’t waste too much time trying to go it alone. Go after the banks. Some shops are getting busy but others are not. And don’t just talk to the guys who were on the cover for your IPO but go after new names. Don’t be afraid to talk to the regional banks and the boutiques. Many of them have excellent analysts and very focused sales forces.  

Now is the time to act. Many companies are heading down the road to raise money. If you wait you may get caught in traffic. Doing a traditional PIPE or a convertible deal (if structured correctly) will not preclude you from doing a follow-on public offering when that window opens. Enjoy the warm weather and fresh air and pick-up a few dollars along the way.

Ira Leiderman is managing director of the Palladin Group, a New Jersey-based investment management firm. He was previously a senior healthcare banker at Gerard Klauer Mattison. You can e-mail him at [email protected] .    

TrendSpotter is a weekly column that focuses on how trends in politics, patent law, and the US and European markets affect the genomics industry. The column appears every Friday. Next week Robert Goldberg, a senior fellow at the National Center for Policy Analysis, will offer his thoughts regarding genomics and Capitol Hill.  

To access previous columns just enter the word "Trendspotter" in the archive search window on the homepage.    

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