Goodwin Insights January 24, 2018

Key Takeaways from GoodwinSpeaks: Accessing U.S. Capital from Asia: From Crossover Financings, to IPOs and Follow-on Offerings

Goodwin recently held the first of its three seminars during J.P. Morgan week in San Francisco. This seminar focused on Asian companies accessing capital from the U.S. capital markets, as opposed to many other seminars which focus on U.S. companies accessing capital from Asian investors. Early 2018 seemed like the ideal time for this seminar as many foreign companies are interested in accessing the U.S. capital markets given the strength of the markets in 2017. The panelists for this seminar were Kathy Bergsteinsson, head of Healthcare Capital Markets, Morgan Stanley; Jessica Chutter, chairman of Biotechnology Investment Banking, Morgan Stanley; and Arthur McGivern, partner at Goodwin.   

Key takeaways included:

1) U.S. Capital Markets Saw Broad-Based Strength in 2017 for Biotechnology Companies.  The U.S. capital markets were very strong in 2017 for biotechnology companies, with capital raising surpassing 2015 volumes.  According to Dealogic, in 2017, biotechnology companies raised $22.2 billion over a total of 136 deals. In 2017, the pricing of U.S. initial public offerings, or IPOs, for biotech companies stabilized with almost all deals pricing within or above the price range.  In addition, biotechnology companies saw a nice step-up in IPO valuations, with a median 1.5x pre-IPO money valuation compared to last private round.

2) Reasons for Investments in Asian Companies.  U.S. buy-side investors are becoming increasingly interested in investing in Asian companies, as evidenced by the recent successful IPO and follow-on offering of Beigene Ltd. and successful IPO of Zai Lab Limited. The size of certain Asian markets, particularly the Chinese market, as well regulatory changes in China have helped generate this buy-side interest.

3) Need to Choose Key Advisors for the IPO Process.  Asian companies seeking access to U.S. capital markets should make sure to pick the best possible advisors, including bankers, accounting firms and attorneys, to guide them through the IPO process and beyond. In choosing banks to advise on an IPO, a company should make sure that it has the support of a bank’s investment banking team, capital markets team as well as the research analyst that would be covering the company post-IPO.

4) Pre-U.S. IPO Planning.  The IPO process must begin months in advance of holding the organizational meeting for the IPO, as many things need to be done before focusing on the preparation of the registration statement for the offering. The company will need to engage the appropriate advisors for the IPO process and corporate documentation will need to be complete and properly organized to allow the banks, attorneys and accountants to perform the necessary due diligence on the company. A company may need to undergo restructuring in order to qualify for listing on a U.S. securities exchange. For example, a PRC company will need to convert to an off-shore structure to be eligible for listing, a process which could take months to complete. In addition, a company’s financial statements must be audited to appropriate public company standards, a process best started well in advance of the official IPO process.

5) Multiple Contacts with U.S. Investors is Key for a Successful U.S. IPO.  Companies should have numerous interactions with U.S. buy-side investors prior to the planned closing of the IPO in order to ensure that the investors understand their businesses and value propositions. During the IPO process, the underwriters will typically take a company on testing-the-waters meetings, or TTW meetings, but these meetings are not meant to be a company’s first interaction with buy-side investors. Companies should consider doing a private cross-over round of financing in advance of their IPOs.  Cross-over financings allow a company to bring public company investors that participate in private financings into its stockholder base, and to build early support for its IPO, as cross-over investors will also participate in the IPO. Eighty percent of the biotechnology IPO companies from 2017 had cross-over investors in their stockholder base prior to the IPO.