WHY HAVE WE SEEN A SLOWDOWN IN IPOS AND WHAT COULD

DRIVE AN INCREASE?
May 10, 2017

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The Number of Public Companies Has Declined by Close to 50%

Number of Public Companies

9,000

8,090
7,905
8,000
7,487 7,499
7,229
6,917
7,000

6,177
6,000 5,685
5,295 5,226
5,145 5,133 5,109
5,000 4,666
4,401 4,369 4,381 4,331
4,279 4,171
4,102 4,180
4,000

3,000

2,000

1,000

-
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: World Bank.

Note: Includes SEC registered companies on a U.S. public exchange.

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IPO Trends
Number of IPOs
900
812
800

700
The number of IPOs 597
600 553
has declined 534

materially from their 500

429
pace prior to 2000 400
377

281
300 244
209 208 221 219
200 163 155
130 136
92 86 83 99
100 63 48
34
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

IPOs Less Than $100 Million Market Cap as a % of Total IPOs

60.0%
52.1%
49.1%
50.0% 46.1%

40.0% 35.8%
Small cap has
become a smaller 30.0%

percentage of total
IPOs 20.0%
14.1% 15.1%
12.4% 12.4% 13.3%
10.6% 11.8% 11.0%
9.6% 9.0% 9.8%
10.0% 6.2% 7.3% 8.2%
5.8% 5.9% 4.8% 4.4%
2.1%
0.0%
Source: Dealogic. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Note: Includes SEC registered IPOs. Excludes BCCs, SPACs and closed end funds.

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Factors to Consider

Rise of private equity

Regulatory environment

The JOBS Act has been a homerun for emerging growth company IPOs

Stifling regulatory environment

Expense burden of being public

Costs / requirements of being a public company

Time to liquidity

Market risks

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What is Needed for a Favorable IPO Market?

A healthy IPO market requires a confluence of:

Favorable Market Trends and Valuation Levels

Favorable Regulatory Environment

Post Deal Sponsorship

Getting public is half the battle

Research support is essential to provide information flow to investors

Trading support is essential to provide liquidity to investors, particularly for illiquid small cap companies

As of 2012, nearly 29% of exchange listed companies had no meaningful research coverage

This is most concentrated in sub $250 million market cap companies, where the lack of coverage is

north of 50%

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Issues to Consider to Make Public Markets More Attractive
JOBS Act

Major positive for emerging growth companies

Limited evidence to support that Regulation A offerings are gaining traction
Based on our findings, there have been 171 Regulation A offerings filed(1)
Based on our findings, companies that have raised public capital through a Regulation A offering have not
developed a robust trading market for their stocks on U.S. public exchanges

Sponsorship post deal Essential to the success of an IPO

Role of sell side research continues to be eroded

More junior talent

Restricted roles on underwritings

More short term focus

Regulations (current/pending) are damaging the model for the firms that focus on small/mid cap companies

Glass-Steagall

Decimalization

Global settlement

Tying

Desk commentary

MiFID

Regulatory burden is impeding information flow

(1) Source: Morrison I Foerster. Data through December 2016.

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Regulation A Company Example
Reg A Company Comp Group(1)

2016 This Company completed a Ticker --- ---

$17.0 million capital raise
through a Regulation A Pricing Date --- ---
$17 Million offering
Offer Price $12.00 $15.00
The Companys shares
Market Cap
launched and began to 270.8 255.5
($mm)
trade on a public
exchange
Offering Method Regulation A Traditional IPO
A search of Regulation A
companies discloses this
Regulation A % Change Price
(47.9%) 24.8%
Company as one of the Offer / Current
Offering most successful in
developing an active Research NA 5
trading market for its stock
in U.S. public markets ADTV Since
6,899.7 106,628.2
Pricing

Price Performance Since Offering

450.0% Reg A S&P 500 Dow Jones NASDAQ
(47.9%) 25.1% 28.2% 35.5%
350.0%

250.0%

150.0%

50.0%

(50.0%)

(150.0%)
2/19/2016 4/19/2016 6/19/2016 8/19/2016 10/19/2016 12/19/2016 2/19/2017 4/19/2017
Source: FactSet.
Note: Price performance as of 5/8/17.
(1) Includes the median of 35 U.S. companies that completed an IPO since 2015 with a market cap between $200 million and $350 million.

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Key Takeaways

The mission of the SEC is to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation

Suggested areas of focus:

Protect Investors

Decline of equity research platforms and lack of small cap coverage is not a positive for investors or small/mid cap IPOs

Fair, Orderly & Efficient Markets

Tying is rampant which, is illegal and anti-competitive

Larger lenders continue to gain share at the expense of firms that are dedicated to small and mid cap companies

Continued concentration of market share in the allocation of capital will ultimately limit the ability of smaller investors to
participate

Capital Formation

JOBS Act has been great

Unsure Regulation A will create successful public companies

Continued efficiency and cost improvements are needed

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Disclaimer

The foregoing material was prepared for informative purposes only and is not an offer to buy or sell any securities. The foregoing material is not
intended to recommend the purchase or sale of any securities or to provide information on which an investment decision to purchase or sell any
securities could be based. Information contained in the material was obtained or derived from sources considered reliable, but has not been
independently confirmed or verified. The foregoing material does not purport to contain all of the information that may be required to evaluate all
of the factors that would be relevant to any person considering entering into a transaction, and no representation is made that the information is
accurate or complete. Any person considering entering into a transaction should conduct its own investigation and analysis and should consult
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or tax advisor. Nothing in the foregoing material is intended, or should be construed, as legal, accounting, regulatory or tax advice. Any discussion
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