PIPE Investor Trend

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

Today, a small cap public company considering raising equity may find the alternative of using a PIPE, a private investment in a public entity, to be a more attractive option.

That’s my conclusion from the 2012 tally of PIPE investors by Placement Tracker, the well-regarded source of this data.

So, here’s the background.  When I created my Equity Series of videos to help small cap public company executives to better understand the options available to them when raising equity, I created a video on PIPEs.

In my video, I said that because a PIPE is a private investment, historically, hedge funds have been the primary investors, not the larger universe of traditional institutional investors which typically invest in public securities.

Hedge funds invest in PIPEs but negotiate terms that are expensive for the issuing company.

PIPEs, therefore, have come to be considered a relatively more expensive method for a small cap public company to raise equity vs other offering alternatives.

This year, 2012, however, reveals an interesting development.  In the 2012 PIPE investor tally, produced by Placement Tracker, 10 of the top 25 PIPE investors were not hedge funds but more traditional institutional investors.

In fact, the number one PIPE investor is a traditional institutional investor, Fidelity Investments.

So today, a small cap public company’s PIPE may be sold to a larger universe of investors including those traditional institutional investors which purchase stocks on more favorable terms, such as investing at the market price without a discount and without other sweeteners such as warrants.

This is a positive development and makes the option to raise equity through a PIPE offering more attractive.  I hope this trend continues.

I’ve included a link to the online magazine, Growth Capitalist, which first tipped me to this development.  Also, I’ve provided the 2012 PIPE Investor tally from Placement Tracker as well as the link to all its 2012 tables.

As always, please contact me to help your company to raise equity or to complete any capital market project.  

2012 US PIPE Mkt Institutional Investor League Table

Growth Capitalist Article: http://www.growthcapitalist.com/?utm_source=Growth+Capitalist&utm_campaign=a7c6c3845e-RSS_EMAIL_CAMPAIGN&utm_medium=email

Placement Tracker Article: http://www.globenewswire.com/news-release/2013/01/09/515496/10017525/en/PlacementTracker-Publishes-2012-PIPE-Market-League-Tables.html

Beat the Tax Law Change

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

We’re seeing a surge in inquiries by significant shareholders at small cap public companies who are considering a sale of their shares before their tax rates rise at year end.

In 2013, the capital gains tax rate along with the Medicare element is expected to result in an effective tax rate of 23.8% for higher income individuals from 15% today, almost a 60% increase.

We can assist your shareholders in completing stock sales yet this year before the tax law changes.

Monarch Bay’s experienced professionals can assist your shareholders with registered secondaries, block trades or dribble out programs to fit your shareholders’ goals and the situation.

We’re also pleased to announce the addition of several highly experienced institutional salesmen to the Monarch Bay team.  Our expanded team will help complete these year-end stock sales plus help increase institutional awareness well into the new year.

It’s important to get on this right away.  There’s not much time left this year.

Please contact me to discuss your shareholders’ stock sales or any capital market projects.

 

 

Raising Equity for Small Cap Public Companies Series

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

See “Equity Series” above on navigation bar.

Today, Wall Street investors are receptive to buying public company stock, even IPOs, initial public offerings, which is a sure sign of investor appetite. 

So, in this receptive Wall Street environment, many small cap public companies are considering raising equity capital.

Now, small cap public companies have many more options for the mechanics of raising equity.  That’s a good thing but requires company management to make some choices, preferably good choices.

To help companies to better understand what options are available as well as some of the tricks and traps, I created a series of videos on raising equity for small cap public companies.

In this equity series, I’ll address topics including:

  • How to get the best deal.
  • What are key regulatory rules.
  • What are the available mechanisms for raising equity and
  • What are the pro’s and con’s of each mechanism.

Each of my videos will be short and focused on one element of the topic.

I plan to supplement my videos with contributions from other professionals who will add their special expertise to the series.

I hope you’ll enjoy this series.  Give me your feedback to make it even better.

 

JOBS Act Progress on General Solicitation

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

Well, I’m calling it progress.

The SEC has submitted for comment some revised rules under the recently enacted JOBS Act.

The proposed rules would permit offerings of securities which are exempt from registration, commonly known as private placements,  to be marketed more widely than is currently possible.

The current rules limit the number of potential investors that can receive the offer.  Under the proposed rules, those limits are removed.

What remains generally the same are the rules defining who can invest.  They must meet tests to qualify as accredited investors.

That’s why I call it progress as long as something like the proposed rule gets adopted.

Today, companies and their agents raising capital have the technology to reach out to just about every potential investor on the planet, so why not?

At the same time, restricting investors to those who are accredited maintains some protection for unsuitable investors.

There’s more progress needed but this is a step.  The SEC press release is available at the link below.

As always, please contact me to help your company raise equity or debt or complete M&A deals.

SEC Press Release: http://www.sec.gov/news/press/2012/2012-170.htm

 

 

Microcap Funding Twist

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

Raising equity capital for smallcap companies, defined as companies with market values $2 billion or under, has gotten easier because of techniques like shelf registrations which permit overnight offerings and ATMs or at the market dribble out financings.

However, raising capital for the microcap end of the public market, defined as companies with market values of $100 million or less, hasn’t gotten much easier, in my opinion. 

It could be several factors, fewer microcap investors, generally lower liquidity or other causes.

This is a problem because many microcap companies need capital to grow.  If capital is too expensive or not readily available, it stifles their growth.

Therefore, when my firm helps microcap companies to raise equity, we often include less conventional sources of capital in the mix.

In addition to the hedge funds which have been the main source of capital for microcaps, we often approach three additional sources:

(i)                strategic investors,

(ii)             private equity crossover funds and

(iii)           wealthy individual investors.

These sources may not be as speedy but they may offer better terms.

First, strategic investors.  Many large companies have lots of cheap capital available but need growth.  This has opened the door for microcap companies to obtain capital from strategic investors.

What strategic investors want from the investment will vary, maybe it’s a co-marketing arrangement or a technology license, but they typically don’t want to consolidate the microcap’s performance in their financials.   

The key point here is that the strategic investor is expecting to get a return in ways other than those of traditional financial investors.  This creates some interesting opportunities.  For example, I’ve seen several recent strategic investments made at a significant premium to market.

The second group of investors are called private equity crossover funds.  Because the competition among private equity groups is so intense, some private equity funds have taken to making investments in public companies.

It’s important to distinguish these private equity crossover funds from classic hedge funds.  These crossover funds look at different metrics.  They look at IP position, capital efficiency and size of addressable market, and less at current profitability and liquidity.

Private equity crossover funds take a longer term view more in sync with corporate management.

The third group is wealthy individual investors.  These are the ones who survived the Great Depression with capital so they’re savvy investors, survivors.

They seem to come in two types, passive or active. 

The passive investors know they don’t have time to closely monitor their investment so they may appoint or hire someone to help them.  In a recent example, individual investors selected a representative to review documents and serve as their eyes and ears.

The other type of individual investor, the active investor, may serve as a board member and company mentor.  The active investor’s perspective is that he provides capital and advice, combined.

I suppose I should mention that we may see a return of the old style passive individual investor, investing very small amounts of capital in higher risk situations.  The recent crowd-funding legislation may spark the return of that style where an individual investor’s stake is so small in relation to his net worth that the complete loss is not too painful.  We’ll see how the new rules are drawn and what develops here.

In summary, we think it pays to include these less conventional capital sources to get your capital on the best terms.

Please contact me to help your company raise equity or debt or complete an M&A project.

The JOBS Act – Update

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

The new JOBS Act, intended to make it easier for smaller companies to raise capital, was signed into law by the President on April 5th.

First, let me say that I welcome the reduction in the regulatory burden on smaller companies.  I hope this spirit of deregulation will be extended to existing small cap public companies which continue to operate under the old burdens.

However, some needed changes to encourage capital formation by smaller companies aren’t as easily handled through legislation.  For example, thin liquidity in many small cap stocks has several causes and would require several fixes.  Lack of liquidity, therefore, will likely continue to plague smaller cap stocks.

Also, we can’t legislate good judgment.  Even under the former, so-called stricter rules, investors shoveled money into Chinese stocks, many of which proved to be unwise investments.  The new JOBS Act places even greater responsibility on investors to exert good judgment.

Experience tells me that companies considering raising capital should take advantage of these relaxed rules as soon as possible before some visible blow-ups or disasters trigger re-tightening of the rules.

The following links provide helpful summaries and analyses of the JOBS Act.  Thank you.

Sheppard Mullin: http://www.corporatesecuritieslawblog.com/capital-markets-president-obama-signs-jobs-act-landmark-reform-for-small-and-emerging-growth-companies-now-law.html

TroyGould: http://troygould.com/index.cfm?fuseaction=content.contentDetail&ID=9187&tID=303

Latham & Watkins:http://w.on24.com/r.htm?e=445288&s=1&k=17FD77D843F6EAE8A36641AD5AE93257

New JOBS Act – Outlined

My friend, Louis Dienes, at TroyGould Attorneys is planning to distribute early next week an updated summary of the JOBS Act just signed into law.

At the end of March, Louis had prepared the following outline of the new JOBS Act for quick reading.

Here is a shortened link to the TroyGould website page: http://bit.ly/HoRMFE

Here is the page content headed up by Louis’ smiling face.

Client Alert

Louis Dienes

Louis R. Dienes
310.789.1212
LRD@troygould.com
PRACTICE AREAS
Business Finance
Corporate
Emerging Growth Companies
and Venture Capital

Intellectual Property
Mergers and Acquisitions
Securities

The JOBS Act bill is intended to stimulate economic growth by improving access to the capital markets for emerging growth companies     JOBS Act Makes Major Revisions to Securities Laws; Eases Capital-Raising for Smaller Companies

On March 27, 2012, the U.S. House of Representatives passed the Jumpstart Our Business Startups Act (the JOBS Act), following with strong bipartisan support the U.S. Senate’s March 22, 2012, passage of the JOBS Act.  It is widely expected that President Obama will sign the act into law later this week.

The JOBS Act is intended to stimulate job creation and economic growth by improving access to the capital markets for emerging growth companies.

The JOBS Act contains a number of provisions designed to ease capital-raising for private companies, including:

Allows equity-based crowdfunding

  • “Crowdfunding” activities are permitted, so that issuers may raise up to $1 million from a large pool of small investors, subject to limitations based on investor income levels.  Issuers will be allowed to rely on investor certifications of income.
  • An investor with an annual income or net worth of less than $100,000 may invest no more than the greater of $2,000 or 5% of his or her annual income or net worth in any 12‑month period in a given company, and an investor with an annual income or net worth of more than $100,000 may invest up to 10% of his or her annual income or net worth annually (with a cap of $100,000 per investor, per company annually).
  • Companies relying on these provisions must satisfy the following financial statement requirements:
    • Raising amounts up to $100,000 annually requires the certification of the principal financial officer that the financial statements are true and correct;
    • Amounts between $100,000 and $500,000 annually will require review by an independent public accountant; and
    • Amounts above $500,000 annually will require audited financial statements.
  • Offerings will have to be conducted through a broker or a “funding portal.”
    • Issuers may not advertise the terms of the offering other than to direct investors, brokers or funding portals.
    • Issuers will be required to file with the SEC and provide to investors and intermediaries a range of information regarding the offering and the issuer (at least 21 days prior to the first sale to any investor and not less than annually thereafter).
  • Securities issued will be “covered securities” and exempt from state Blue-Sky registration.
  • Securities issued will be subject to transfer restrictions (with limited exceptions) for one year.

Removes the prohibitions on general solicitation or general advertising when conducting private placements under Rule 506 of Regulation D

  • The SEC must remove the prohibition on general solicitation or general advertising when conducting private placements under Rule 506 of Regulation D, thus allowing companies to advertise broadly when conducting private placements.

Increases threshold for Regulation A “mini public offerings”

  • The JOBS Act raises the limit for offerings under Regulation A (the little used small offerings exemption) from $5 million to $50 million and exempts Reg A offerings from state securities laws, so long as the securities are:
    • Offered or sold over a national securities exchange, or
    • Sold to “qualified purchasers” – a term that will need to be defined by SEC rulemaking.
  • The revised Regulation A will require issuers to file audited financial statements annually with the SEC, and the JOBS Act directs the SEC to develop rules relating to periodic disclosure by Regulation A issuers and to develop rules requiring an issuer to file and distribute to prospective investors an offering statement containing specified disclosures.

Initial Public Offering “On-Ramp”

  • The JOBS Act creates a category of issuer called an “emerging growth company,” which is defined as a company with under $1 billion in annual revenue.
  • A company will remain an emerging growth company until the earliest of:
    • Five years after the company’s initial public offering (IPO);
    • When the company becomes a “large accelerated filer,” defined as an issuer with in excess of $700 million in unaffiliated public float;
    • When the company has issued $1.0 billion or more of non-convertible debt in the previous three years, or
    • When the company reaches $1 billion or more in annual revenue.
  • Under the JOBS Act, emerging growth companies:
    • Will be permitted to include only two years of audited financial statements (and two years of Management Discussion & Analysis and selected financial information) in its IPO registration statement, and future filings would not need to go back any earlier
    • Will not be required to provide an auditor attestation of management’s assessment of internal controls for financial reporting created under Sarbanes Oxley
    • Will be exempt from certain accounting requirements, including the audit firm rotation and the supplemental information by audit firm requirements
    • Will be exempt from shareholder approval requirements of executive compensation (“Say on Pay”)
  • Research reports relating to emerging growth companies and research communications with investors and management will be made easier:
    • Investment banks will be permitted to publish research during the pendency of a public offering, even if they are the company’s underwriters.
    • The research analyst conflict of interest rules related to marketing of IPOs and “three-way” communication between research, investment banking and management will not apply.
    • There will be no post pricing quiet period or booster shot restrictions on research reports or other communications.
    • Emerging growth companies and their authorized representatives will be permitted to communicate orally or in writing with Qualified Institutional Buyers and Institutional Accredited Investors to determine interest in a potential offering whether before or after the filing of a registration statement for the offering.
  • The SEC will permit IPO filings by emerging growth companies to be made confidentially.
  • A company may only qualify as an emerging growth company if its first sale of common equity pursuant to an effective registration statement occurred after December 8, 2011.

Increases the number of record shareholders that require an issuer to become an SEC-reporting company

  • The maximum number of shareholders of record that a private company can have before it must register with the SEC as a public company has been increased from 500 to 2,000, so long as fewer than 500 are non-accredited investors, and excluding shareholders who received employee compensation plan securities and “crowdfunding” investors.

When will these changes take effect?

  • The timing relating to these provisions varies:
    • Changes to the number of shareholders of record requiring an issuer to become an SEC reporting company will be effective upon enactment;
    • The SEC must make the changes to Rule 506 regarding general solicitation within 90 days;
    • The SEC  must enact rules facilitating the crowdsourcing provisions within 270 days; and
    • Changes to Regulation A will require SEC rulemaking, but no time limit is set by the JOBS Act.
About TroyGould
Founded in 1970, TroyGould is a Los Angeles law firm with a diverse client base and a practice covering a broad range of business transactions, litigation, and legal counseling, with emphasis in the areas of corporate finance, mergers & acquisitions, real estate, financial services, entertainment, employment, tax, and competitive business practices.
©2012 TroyGould PC. All Rights Reserved. The information in this e-mail has been prepared by TroyGould PC for informational purposes only and not as legal advice. Neither the transmission, nor your receipt, of information from this correspondence create an attorney-client relationship between you and TroyGould PC. You are receiving this email from TroyGould PC because you have a business relationship with our firm and/or its attorneys.
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DirectMarkets – Second Look

Dennis McCarthy – (213) 222-8260 – dennismccarthy@ariesmgmt.com

My post announcing the planned launch of DirectMarkets, Rodman & Renshaw’s new automated system which permits companies to sell their stock directly to investors, prompted lots of questions.

At the moment, the best I can do is to give you the press release (copied below) on DirectMarkets’ website (www.directmkts.com).

My reaction upon reading the planned scope of activities is that DirectMarkets is clearly ambitious and, if successful, would transform Wall Street.  In fact, its’ aim seems to be to dis-intermediate Wall Street.

For example, DirectMarkets would offer investors access to company information, both standard stuff like SEC filings and company presentations as well as “interactive” access to company executives. Will DirectMarkets obsolete roadshows and conferences?

DirectMarkets’ key function, however, enables investors to offer to buy primary shares directly from a company.  Also, it appears that investors can buy shares from company executives and other shareholders who sign up to DirectMarkets.  Share sales would be completed through the site using standardized documentation.

As I read the press release, two words came to mind, “transparency” and “orphans”.

It appears that DirectMarkets offers  greater “transparency”.  Is that good?

Today, investors and companies go to great lengths to avoid transparency.  Just who’s a buyer or who’s a seller and at what price and how much do they have to sell or want to buy.  These are closely guarded secrets.

Investors’ desire for secrecy seems to apply whether the underlying company is large or small.  For smaller, less liquid companies, greater transparency may result in greater volatility.  Is that good?

Second, if DirectMarkets is successful, the dis-intermediation of Wall Street may further orphan small and microcap companies.

Already, several developments have reduced Wall Street’s profit from small and microcap stocks.  There’s simply not enough revenue potential to justify Wall Street’s cost to research and trade in many small or microcap stocks.

DirectMarkets may save companies some money in their new stock sales but may further “orphan” those same companies.  Is that a good tradeoff?

Do small and microcap companies need Wall Street support to get attention from among the thousands of companies vying for investor attention.

Do small and microcap companies benefit from Wall Street’s research with its independent projections and from Wall Street’s salesmens’ constant reminders.

The answer to these questions may determine the adoption rate of DirectMarkets.  I know we’ll all be watching to see how this plays out.

Press Release:       Rodman & Renshaw Launches DirectMarkets:

First-Ever 24/7 Automated Electronic Transaction Platform to Link Issuers with Investors for Primary Offerings of Securities by Existing Publicly-Traded Companies

— Kevin Lupowitz Recruited as CEO of DirectMarkets —

NEW YORK–(BUSINESS WIRE)– Rodman & Renshaw Capital Group, Inc. (Nasdaq: RODM), via a new subsidiary, DirectMarkets, will unveil an automated state-of-the-art electronic transaction platform to directly link existing public company issuers and investors seeking to transact primary offerings of securities. DirectMarkets will bring unprecedented, cost-efficient access to the capital markets into the C-Suite of public companies and bypass certain traditional roles typically held by investment banks that presently control the transactional process. Both investors and issuers will benefit from 24/7 seamless access to DirectMarkets’ platform through a graphical user interface (GUI) accessible via a desktop or laptop computer, as well as any mobile smart devices such as tablets or smartphones. The official launch will take place at the TradeTech 2012 Conference in New York City that begins on March 6, 2012.

With its many features, the DirectMarkets platform will empower issuers to sell shares (covered by a shelf registration) directly into the secondary market and to complete funding transactions at a fraction of the current cost. Using the same platform, investors will be able to directly contact issuers, with effective shelf registrations in place, to indicate their interest in buying that issuer’s stock, effectively gaining the ability to accumulate stock positions in a more cost-effective manner than through on-going open market purchases.

Suitable for companies listed on NYSE, NYSE Amex and NASDAQ, as well as unlisted OTCBB companies, the DirectMarkets platform is designed to bring greater efficiency and cost savings to current methods that public companies use to effect financings, including follow-on offerings, Registered Directs (RDs,) At-the-Markets (ATMs), Confidentially Marketed Public Offerings (CMPOs) and Private Investments in Public Equities (PIPEs). Adaptation of the platform across international markets will also be pursued by DirectMarkets.

To lead DirectMarkets, Rodman has recruited Kevin Lupowitz as Chief Executive Officer of the DirectMarkets operating entity. Before joining DirectMarkets, Mr. Lupowitz, age 42, was the Chief Information Officer at FXall, a leading electronic foreign exchange platform. Previously, he was a founding employee of Liquidnet, the global institutional trading network, where he was also Chief Information Officer.

By providing added efficiencies that link issuers with purchasers of securities, while substantially reducing related fees and expenses because of the limited role of intermediaries, the DirectMarkets platform is positioned to be the catalyst for a major paradigm shift in the securities industry. As Edward Rubin, Chief Executive Officer of Rodman & Renshaw, explained: “DirectMarkets is an outgrowth of Rodman’s continual evolution and desire to lead, innovate and service the capital needs of both issuers and investors. We have always recognized the need to be swift in adapting to changes in financing approaches and marketplace requirements. DirectMarkets will be a game-changer and with Kevin Lupowitz’s talent and experience at the helm, this new electronic transaction platform is the catalyst that will redefine Rodman as an innovative technology company focusing on the financial services industry, while strengthening our legacy business.”

The DirectMarkets platform will complement Rodman’s various other business activities, including its market making, sales & trading, research, investment banking, and conferences. In assessing the multiple advantages, Mr. Lupowitz added, “I look forward to heading DirectMarkets. Rodman already has a solid foundation of thousands of potential issuers and investors. DirectMarkets will capitalize on those existing relationships to provide issuers with efficient access to market demands. We will have a unique competitive advantage as the platform gains traction and we begin the process of easing issuers and investors through the transition from manual transactions to our new automated platform.”

In conjunction with the launch of DirectMarkets, Rodman & Renshaw Capital Group, Inc. intends to change its name to Direct Markets Holdings Corp., subject to stockholder approval at its 2012 Annual Meeting of Stockholders scheduled to be held on May 4, 2012. Rodman’s sales & trading and investment banking operations will continue to be conducted by Rodman & Renshaw, LLC.

DirectMarkets Key Features

The DirectMarkets platform’s functionality will include:

  • 24/7 seamless access to the DirectMarkets portal through a graphical user interface (GUI) utilizing a desktop or laptop computer, or any mobile smart device such as a tablet or smartphone.   Providing Execution Management System (EMS) and Order Management System (OMS) integration for primary offering transactions.
  • Connectivity among public companies, institutional investors and sell-side firms to facilitate the purchase and sale of securities, typically off an issuer’s existing shelf registration.  Matching secondary market demand (i.e., investor demand typically fulfilled through transactions effected on exchanges or alternative trading systems) with a new source of supply: primary offerings of securities by existing     publicly traded companies (i.e., direct purchases from issuers) utilizing reverse inquiry processes. Enabling investors to express interest directly to an issuer in its securities, becoming a catalyst for a potential transaction.
  • Workflow management tools for complex financing transactions beyond the standardized offerings of common stock at an agreed-upon price. Automating and standardizing the closing process for capital markets transactions from engagement letter through document negotiation, allocation and settlement resulting in significantly reduced costs and transaction expenses for the issuer.
  • Seamless management of ATMs by issuers through the DirectMarkets portal, efficiently selling securities directly into trading markets, reducing costs and taking advantage of market trends and opportunities.
  • Ability for issuers to seamlessly manage and monitor open-market buy-back programs through the DirectMarkets portal.
  • Connectivity among holders of large blocks of an issuer’s securities and interested purchasers, enabling such purchasers to identify and contact such holders directly, and providing venture capital firms, private equity firms, chief executive officers and other senior executives with additional opportunities to monetize their holdings.  Enabling executives to sell 144 restricted and control securities into a     trading market in compliance with holding period, volume restriction and manner of sale regulations.
  • Providing an issuer-managed social networking platform where issuers can communicate directly with investors on a targeted or non-discretionary basis through interactive (e.g., blogs, twitters, virtual tours, etc.) and static content (e.g., press releases, regulatory filings, etc.), and providing investors with a centralized destination to access information across their target companies. Providing issuers with the functionality to conduct electronic non-deal road shows with qualified      investors.

Background

The DirectMarkets platform was developed by Rodman over the last several years, building on the expertise that it has obtained in completing more than 580 financing transactions for public companies since 2002. During the last decade, capital-raising options and alternatives for public companies have evolved from traditional follow-on offerings to RDs, ATMs and CMPOs. Through this evolution, the issuer has gained more influence over the capital-raising process by acting on shorter notice and reducing its exposure to market volatility during the life of a deal. The DirectMarkets platform is the next and logical evolutionary step in empowering the issuer and bringing access to the capital markets directly into the C-Suite of public companies through an electronic interface linking public company issuers with investors.

Patents have been filed and are being prosecuted in the United States and abroad with respect to proprietary components of the DirectMarkets platform including its trade matching system, interfaces and processes.

In recent years, disintermediation has fueled cost savings, introduced efficiencies, and sparked new business models both within the financial services community and across many other industries. Secondary trading of securities has been revolutionized through automation and technology applications resulting in significantly reduced costs, execution efficiency and disintermediation with market participants gaining direct access to counterparties. Companies such as Instinet, ITG and Liquidnet led the way with industry-changing applications and platforms. However, this disintermediation, and the resultant efficiencies, have largely bypassed the market for primary offerings of securities by existing publicly traded companies, where transactions are still predominantly handled manually, much as secondary trading transactions were in years past. DirectMarkets aims to bring the market for primary offerings of securities by existing publicly traded companies into the 21st century with automation, connectivity and disintermediation, resulting in increased efficiencies and significantly reduced costs.

DirectMarkets’ targeted market is currently suited for transformation. The market is large and highly fragmented. While Rodman is the leader in the PIPE and RD transaction markets, having been ranked the #1 Placement Agent in terms of the aggregate number of PIPE and RD financing transactions completed every year since 20051, our market share still only amounts to approximately 8.3% of transactions completed and represents only 4.6% of gross dollars raised through these offerings. The total PIPE and RD marketplace for U.S. public companies was approximately $27.8 billion in 2011. The complete market for primary offerings of securities by existing publicly traded companies includes PIPE, RD, CMPO, Follow-On and ATM transactions. Capital raised in this market totaled approximately $163 billion in 2011. Every U.S. public company that has in place or is eligible to file a shelf registration statement is a potential user of the DirectMarkets platform. Over the past five years, over 4,000 shelf registration statements have been filed by U.S. public companies.

Given the size of the market for primary offerings of securities by existing publicly traded companies and its fragmented state, Rodman is convinced that directly connecting issuers and investors through a low-cost, efficient and proprietary automated platform presents DirectMarkets with a very significant market opportunity.

Conference Call Information

In conjunction with this release, Rodman & Renshaw will hold a conference call on February 2, 2012 at 11:00 AM Eastern Time, hosted by Mr. Edward Rubin, Chief Executive Officer, Mr. Michael Vasinkevich, Vice Chairman, Mr. David Horin, Chief Financial Officer and Mr. Kevin Lupowitz, the Chief Executive Officer of our DirectMarkets subsidiary. Investors and analysts can participate in the conference call by dialing 1-877-407-9205 (United States) or 1-201-689-8054 (International).

The conference will be replayed in its entirety beginning at approximately 2:00 PM Eastern Time on February 2, 2012, through to 11:59 PM Eastern Time on February 8, 2012. To access the replay of this conference call, please dial 1-877-660-6853 (United States) or 1-201-612-7415 (International) and use Account # 286, Conference # 387096.

The conference call will also be simultaneously broadcast live over the Internet, as well as for replay, and can be accessed through the webcasts and presentations tab of the investor relations section of the Rodman & Renshaw Capital Group, Inc. website located at www.rodm.com. Please allow for some time following the completion of the conference call to access the archive of the Webcast. Allow for time prior to the conference call Webcast to visit the web site and download the streaming media software required to listen to the Internet broadcast.

About Rodman & Renshaw Capital Group, Inc.

Rodman & Renshaw Capital Group, Inc. (NASDAQ: RODM) is a holding company with a number of direct and indirect subsidiaries, including Rodman & Renshaw, LLC.

Rodman & Renshaw, LLC is a full-service investment bank dedicated to providing corporate finance, strategic advisory and related services to public and private companies across multiple sectors and regions. The company also provides research and sales and trading services to institutional investors. Rodman is the leader in the PIPE (private investment in public equity) and RD (registered direct offering) transaction markets. According to Sagient Research Systems, Rodman has been ranked the #1 Placement Agent by deal volume of PIPE and RD financing transactions completed every year since 2005. For more information visit Rodman & Renshaw on the Internet at www.rodm.com.

MEMBER FINRA, SIPC

Cautionary Note Regarding Forward Looking Statements

This press release contains forward-looking statements regarding future events and financial performance including, but not limited to the timing and success of the roll-out of the DirectMarkets platform. In some cases, you can identify these statements by words such as “may,” “might,” “will,” “should,” “except,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of these terms and other comparable terminology. These statements involve a number of risks and uncertainties and are based on numerous assumptions involving judgments with respect to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. There are or may be important factors that could cause our actual results to materially differ from our historical results or from any future results expressed or implied by such forward looking statements.

These factors include, but are not limited to, those discussed under the section entitled “Risk Factors” in our Annual Report on Form 10-K, filed March 15, 2011, which is available at the U.S. Securities and Exchange Commission website at www.sec.gov. The forward-looking statements in this press release are based upon management’s reasonable belief as of the date hereof. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

1 Source: Sagient Research Systems, a leading publisher of independent research for the financial services and institutional investment communities.

Contacts

Rodman & Renshaw Capital Group, Inc.

Investors:
Dave Horin, 212-356-0545
Chief Financial Officer
or

Edelman for Rodman & Renshaw and DirectMarkets

Media:
Mike Geller, 212-729-2163

DirectMarkets – 24/7 Company Share Sales

 

The big capital market news today is Rodman & Renshaw’s announcement of the planned launch of “DirectMarkets”, an automated means for companies to sell shares directly to investors.

Like any new capital market development, this announcement was met with some skepticism about its likely success in the marketplace.

Will it operate like a vending machine, available 24/7?

How much control will companies retain on timing and pricing of new issues?

Will listing a company’s shares effectively cap its price appreciation since any demand can be filled with primary shares? And what about the effect on liquidity?

One of my colleagues reminded me of another major capital market development, the dutch auction IPO, used with much fanfare on Google’s IPO five or six years ago.  It’s interesting to note that the recent major IPOs, including Facebook’s planned IPO, use the traditional method, not the dutch auction IPO.

So, we will debate the future of DirectMarkets, but only time will tell.

Link to Rodman & Renshaw’s press release.

If the link doesn’t work, please cut and past the following URL into your browser: http://phx.corporate-ir.net/phoenix.zhtml?c=122722&p=RssLanding&cat=news&id=1655924

The Corporate ATM

dennismccarthy@ariesmgmt.com – (213) 222-8260

Comparing ATMs and Equity Lines

Small cap companies are increasingly using the “at the market” or ATM offering as a means to raise capital in response to a volatile and unpredictable stock market environment.

An “at the market” offering enables a company to take advantage of a receptive stock market to raise capital either by dribbling out its shares over time or by doing a large offering.

How does a corporate “at the market” offering work?    First, the requirements:

In order to create a corporate ATM, a public company must be traded on NASDAQ or one of the exchanges, NYSE, AMEX, etc.

These public companies can register shares for future sale by filing an SEC “shelf” offering.  This “shelf” permits a company to sell its shares in the future whenever it wishes either by “dribbling out” its shares or by selling them all at once.

The shares sold are fully registered so the buyer can resell them whenever it wishes which expands the universe of potential investors and reduces the liquidity risk.

In a typical corporate ATM, the company picks an investment bank (or banks) to be its agent in selling the shares over time.

The shares are sold “at the market” less a small agent fee.

The company determines the timing and amount of shares to be sold constrained only by what the market will accept.

In theory, the shares are sold to long-term holders but there’s no guarantee.

Let’s compare this with an equity line which is another increasingly common means to raise equity over time.

In an equity line, like a corporate ATM, a company files a registration statement for its planned share sales.

In the equity line, however, the company selects an investor to buy the shares.  There is no agent or agent fee. 

This investor, however, will structure the relationship with the company to limit the investor’s risk.

This typically means that the investor will price the shares at a healthy discount to market and may add warrants to sweeten its return.

Also, the investor typically limits the amount of shares it will purchase at any one time.

An equity line investor is typically not a long-term holder but rather intends to resell the shares at a profit.  Stock market fear of this resale volume has been blamed for depressing an equity line company’s stock price and has slowed the growth of this type of offering.

In contrast, as companies come to learn about the advantages of an “at the market” offering, its use is growing.

If you have any questions about “at the market” or other types of offerings, please contact me.

dennismccarthy@ariesmgmt.com or dmccarthy@cca-ccs.com

(213) 222-8260