This practice note discusses recent market trends regarding registered direct offerings. It begins by discussing the advantages these offerings provide to issuers and continues with a review of current deal structure and process and applicable shareholder approval requirements. It concludes with an overview of market trends for registered direct offerings, including recent notable transactions, activity level, and industry insights.
A registered direct offering is a type of hybrid securities offering that has characteristics of both public offerings and private placements. Generically, the term describes an offering made under an effective registration statement (which is usually a shelf registration statement) filed with the Securities and Exchange Commission (SEC) under the Securities Act of 1933, as amended (Securities Act), that is sold on a best efforts, or agency, basis by a placement agent and is target marketed principally to institutional investors.
For additional information on registered direct offerings, see Registered Direct Offerings and Top 10 Practice Tips: Registered Direct Offerings.
In 2020, there were nine registered direct offerings that raised at least $100 million, the largest being the BeiGene, Ltd. offering, which raised $2.1 billion directly from investors without a placement agent. In 2021, through June 30th, at least 15 offerings of at least $100 million have been completed. For example, Nano Dimension Ltd. raised over $500 million and approximately $332 million in two separate offerings, and Gevo Inc. raised $350 million.
From 2015 to 2019, the numbers of registered direct offerings were relatively constant. However, in 2020, there was a sharp increase in registered direct offerings, and this trend has continued through June 30, 2021.
In 2015, 2016, 2017, 2018, and 2019, there were 139, 167, 224, 166, and 190 completed registered direct offerings, respectively, for aggregate proceeds of approximately $2.5 billion, $2.2 billion, $3.5 billion, $3.5 billion, and $1.7 billion, respectively. The average proceeds raised in an offering in 2015, 2016, 2017, 2018, and 2019 were $15.5 million, $12.9 million, $17.3 million, $20.7 million, and $8.9 million, respectively. In 2020, however, there were 356 registered direct offerings raising aggregate proceeds of approximately $9 billion and average proceeds per offering of approximately $22.3 million. This increased activity has continued in 2021, and as of June 30, 2021, there were 187 offerings for aggregate proceeds of approximately $7.1 billion and average proceeds per offering of approximately $34.5 million.
Included in the registered direct offering totals for 2020 and 2021 are offerings made by companies directly to a small number of institutional investors without a placement agent. In 2020, there were 48 offerings made directly to investors; through June 30, 2021, there were 23 offerings made directly to investors without a placement agent. Many of these offerings were made to hedge funds, pension funds, private equity funds, venture capital funds, and mutual funds.
Issuers in the healthcare, industrial, and technology sectors conducted the most registered direct offerings in recent years. In 2020, amidst the COVID-19 pandemic, healthcare companies were the most active, with 210 offerings raising an aggregate of approximately $5 billion. Industrial companies accounted for 61 offerings raising aggregate proceeds of approximately $1.9 billion, and technology companies completed 39 offerings for aggregate proceeds of approximately $970 million
Through June 30, 2021, healthcare companies continue to be the leaders in registered direct offerings, having completed 70 offerings for proceeds of approximately $2.7 billion.
An issuer may choose a registered direct offering instead of a confidentially marketed firm commitment underwritten public offering if it anticipates the offering will be relatively small or will be sold to a limited number of investors. The investment bank engaged by the issuer may also prefer a registered direct offering because, as a placement agent, it will not undertake any principal risk and will not incur any cost of capital for its participation. Given that registered direct offerings are “best efforts” offerings, there will be no over-allotment option, or “green shoe,” and the placement agent cannot undertake stabilization activities.
For further information on confidentially marketed public offerings, see Market Trends 2020/21: Confidentially Marketed Public Offerings and Confidentially Marketed Public Offerings.
An issuer may prefer a registered direct offering over a private placement or a private investment in public equity (PIPE) transaction if the issuer has an effective shelf registration statement and believes, or is advised that, it will obtain better pricing by undertaking a registered offering rather than a private placement. Institutional investors may prefer to purchase shares issued under a registration statement, which will be freely transferable, rather than acquiring restricted securities in a private placement. In addition, since the securities offered in a registered direct transaction are sold under a registration statement, the placement agent may include retail, or non-accredited, investors in the offering, unlike in a PIPE transaction, where participation is usually limited to accredited investors.
For further information on PIPEs, see Market Trends 2020/21: PIPEs, and PIPE Transactions. For information and resources generally about private placements, see Private Placements Resource Kit.
A registered direct offering may be structured in several ways. Most registered direct offerings completed in recent years have involved offerings of only common stock or, less often, common stock and warrants.
Most issuers undertaking registered direct offerings in recent years have structured them as “takedowns” from effective shelf registration statements. Issuers will usually (but not always) retain a financial intermediary (typically an investment banking firm) to act as placement agent.
The placement agent will usually “wall cross” a few prospective investors (e.g., institutional investors, such as hedge funds, mutual funds, and private equity funds, as well as an issuer's principal shareholders), that is, provide them with limited information about the contemplated offering. This enables the issuer and the placement agent to gauge investor interest before announcing an offering, thus limiting the issuer's risk of having to withdraw an announced offering due to insufficient investor interest. Because the fact that the issuer is contemplating an offering may constitute material nonpublic information about the issuer, the placement agent will obtain confidentiality undertakings from investors that will also obligate them to refrain from trading the company's securities for a brief, usually two- to three-day, period. The issuer and its counsel will also prepare a prospectus supplement that provides the terms of the offering during this period.
For more information on shelf takedowns, see Shelf Registration, Top 10 Practice Tips: Shelf Registration Statements and Takedowns, and Registered Securities Offerings Post-IPO. For a form of script relating to wallcrossing, see Investor Wall-Crossing Script and E-mail Confirmations. For more information on prospectus supplements, see Rule 424 Prospectus Supplements Filing.
Although almost all registered direct offerings completed in recent years have been conducted as shelf takedowns and marketed on a wall-crossed basis, it is possible, although unusual, to conduct an initial public offering as a registered direct offering. A registered direct offering may also be conducted by filing a non-shelf or “bullet” registration statement (i.e., a one-time use single-purpose registration statement), rather than a shelf registration statement. Due to concerns about market volatility and possible shorting activity (made more likely by the time necessary to have a non-shelf registration statement declared effective by the SEC), an issuer may be reluctant to file a single-purpose registration statement for a registered direct offering.
To read the full article click here
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2020. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
© Mondaq® Ltd 1994 – 2021. All Rights Reserved.
Forgot your password?
Free, unlimited access to more than half a million articles (one-article limit removed) from the diverse perspectives of 5,000 leading law, accountancy and advisory firms
Articles tailored to your interests and optional alerts about important changes
Receive priority invitations to relevant webinars and events
You’ll only need to do it once, and readership information is just for authors and is never sold to third parties.
We need this to enable us to match you with other users from the same organisation. It is also part of the information that we share to our content providers (“Contributors”) who contribute Content for free for your use.