The IPO Buzz: Last Blast of Summer

Looking back at the Valley of IPOs, it appears we have seen the last traffic for the Summer of 2017. A “blank check” or special purpose acquisition company (SPAC) went public last week. Nevertheless, many media companies reported two deals got out the door. If you read the prospectuses, or Offering Circulars, you’ll discover there was some confusion out there.

Capitol Investment Corp. IV (CIC.U) is a “blank check” or SPAC company incorporated in the Cayman Islands and based in Washington, D.C. The company priced 35 million shares at $10 each on Tuesday night, Aug. 15, to trade Wednesday on the New York Stock Exchange.

Most of the media attention, though, focused on the second deal last week. The catch: This company went public as a Reg A+ offering. This type of offering lets companies raise capital from non-accredited investors. In contrast, typical IPOs under Regulation D are allowed to raise money only from accredited investors.

No problem there, but Reg A+ offerings are basically “best efforts” deals and their underwriters (or agents) are not required to assume any risk in buying shares to reoffer them to their clients. So let’s take a closer look.

Soup Out of Season

Chicken Soup for the Soul Entertainment (CSSE) priced its Reg A+ offering on Thursday night, Aug. 17, 2017. The “best efforts” deal consisted of 2.5 million shares sold at $12 each. The stock started trading on Friday, Aug. 18, becoming the first crowdsourced IPO to trade on the Nasdaq, as CNBC noted. It opened with a pop and closed with a flop. The stock started trading at $13, sold as high as $13.25 and closed at $9.25, DOWN 22.9 percent from its offering price.

The company, based in Cos Cob, Connecticut, provides video content that is a spinoff of the series of “Chicken Soup for the Soul” books, which became best sellers in the early 1990s.

Check out the Offering Circular’s Page 4 and on the left-hand side of the page, you will see the words “Best efforts offering.” That is the key. It’s not a firm commitment. For the record, does not track “best efforts” offerings.

Let’s go to Page 66 of the Offering Circular and this paragraph:

“The joint bookrunning managers are not purchasing any of the Offering Shares or Additional Shares and are not required to sell any specific number or dollar amount of securities, but will instead arrange for the sale of securities to investors on a “best efforts” basis, meaning that they need only use their best efforts to sell the securities. The joint bookrunning managers may sell some of the Offering Shares and Additional Shares through selected dealers.”

The Back Story

But Chicken Soup was not the first of the new Reg A+ offerings to go public. It was the fourth, according to U.S. Securities and Exchange Commission filings. (The SEC adopted the Reg A+ rules in June 2015.)

The other three Reg A+ deals were: Adomani (ADOM), Myomo Inc. My Own Motion (MYO) and ShiftPixy (PIXY). Two of the three came to market as “best efforts offerings” and the other on “an all or none” basis. Nevertheless, there is nothing like reading the Offering Circulars, as the Reg A+ filings are called.

Adomani priced 2.85 million shares at $5 each on June 14, 2017. On June 15, the stock closed its first day of trading at $7.25 on the Nasdaq Capital Market. The stock sold as high as $18.31 on July 12. The stock closed on Friday, Aug. 18, at $13.11 – UP 162.2 percent from its offering price. (See above for “best efforts” reference found on Page 1 of the Offering Circular.) Adomani designs, makes and installs electric and hybrid drivetrain systems for electric buses and commercial fleet vehicles.

Myomo, also known as My Own Motion, which is the name of its medical robotics device, priced 665,498 shares at $7.50 each on June 9, becoming the first Reg A+ company to go public on the NYSE MKT. On June 12, the stock closed its first day of trading at $7.40. The stock sold as high as $23.20 on June 19. On Friday, Aug. 18, the stock closed at $6.15 – DOWN 18 percent from its offering price. (See above for “best efforts” reference found on Page F-6 of the Offering Circular.)

ShiftPixy priced 2 million shares at $6 each on June 29. On June 30, the stock closed its first day of trading at $7.70 on the Nasdaq Capital Market. The stock sold as high as $12.03 on July 5. ShiftPixy closed on Friday, Aug. 18, at $4.10 – DOWN 31.7 percent from its offering price. (See above for “an all or none” reference found on Page 2 of the Offering Circular.) ShiftPixy offers a proprietary app that helps companies, notably restaurants, and part-time workers navigate “the gig economy” by filling open shifts with qualified people – often on short notice, according to the Orange County Business Journal.

On the Beach

The IPO calendar is as clear this week as Waikiki Beach at sunrise. The same can be said for the week of Aug. 28 and ditto for the week of Sept. 4, when the U.S. stock market will be closed on Monday for the Labor Day holiday.

There’s nothing to worry about here. It’s traditional for the IPO calendar to be quiet in late August through Labor Day. Bankers, after all, have all those platinum miles to use – to escape from Wall Street for a last blast of summer.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinion.