WilmerHale recognizes its corporate responsibility to environmental stewardship.

wilmerhale.com

Wilmer Cutler Pickering Hale and Dorr llp is a Delaware limited liability partnership. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers regulated by the Law Society of England and Wales. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. This material is for general informational purposes only and does not represent our legal advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all relevant legal developments. Prior results do not guarantee a similar outcome.

2008 IPO Report

Attorney Advertising

Table of Contents 2

US IPO Market Review and Outlook

6

Law Firm and Underwriter Rankings

8

Regional IPO Market Review and Outlook

–

California



–

Mid-Atlantic



–

New England



–

Tri-State

10

Selected WilmerHale Public Offerings

12

New SEC Rules Offer Some Relief to Smaller Public Companies

14

Dual Track IPOs – Pursuing Parallel Paths to Liquidity

15

IPOs by Special Purpose Acquisition Companies

16

PIPEs and Rule 144A Market Review and Outlook

19

Recent Developments in the Proxy Environment

20

IPOs – Then and Now

 US IPO Market Review and Outlook 2007 Review With 207 offerings, gross proceeds of $46.5 billion and a median offering size of $119.4 million, the 2007 US IPO market was the largest since 2000, if only by a slim margin. Compared to 2006, results reflected a 5% increase in the number of offerings and a 15% jump in gross proceeds, as the median deal size reached the highest level on record. While the annual deal totals over the last four years—averaging 200 IPOs per year—suggest that the IPO market may have reached a new plateau at roughly two and one-half times the level that prevailed between 2001 and 2003, the weakening market and economic conditions seen at year-end in 2007 have persisted into 2008, clouding this year’s outlook. The number of offerings by US-based issuers declined 9%, from 163 in 2006 to 149 in 2007, reflecting the lowest total since 2003. Gross proceeds, however, increased 6%, from $29.4 billion in 2006 to $31.3 in 2007, due to a decline in smaller offerings and an increase in the dollar volume attributable to billiondollar offerings. The number of IPOs below $50 million fell from 37 to 22, and median deal size by US issuers increased from $100.8 million to $105.0 million. Despite concerns that the more stringent regulatory and compliance environment in the United States might discourage foreign-based issuers from listing on US exchanges, US IPOs by foreign issuers increased 66%, from 35 in 2006 to 58 in 2007—the highest annual total since 2000. Gross proceeds increased 40%, from $10.9 billion to $15.3 billion, while the median deal size declined from $200.0 million to $190.4 million. Chinese issuers produced a whopping 31 IPOs in the US in 2007, with gross proceeds of $6.2 billion, representing more than half of all deals and proceeds from foreign-issuer IPOs. Two high-profile Chinese IPOs occurred outside of the United States, signaling the emerging strength of Chinese stock exchanges— China Railway Construction raised $5.4 billion on the Shanghai Stock Exchange,

US IPOs – 1996 to 2007 US issuers

Foreign issuers

866 98 768 619

537 57

97 522

353 43

480

339

310

1996

1997

446 107

1998

1999

2000

91 14

75 9

71 10

77

66

61

2001

2002

2003

205 34

190 32

198 35

207 58

171

158

163

149

2004

2005

2006

2007

39.0

31.4 5.2

Source: SEC filings

US IPO Dollar Volume – 1996 to 2007 US issuers Foreign issuers $ billions 108.2 95.3

52.7

33.7

59.7 48.8

61.6

28.9 40.8

10.0 38.8 30.8

55.5

41.3 9.1

8.7 32.1

32.2

25.4 6.4 19.0

15.2 6.1

8.7 30.3

26.2

40.4 10.9

46.5 15.3

29.4

31.3

2006

2007

9.1

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Source: SEC filings

and Alibaba.com pocketed $1.49 billion on the Hong Kong Stock Exchange. Far behind China were the next-highest generators of foreignissuer US IPOs, Bermuda and Israel, with six each, and Greece with four. Foreign Country Rankings – 2000 to 2007 China Israel Bermuda Canada

72 34 31 24

Greece

15

The energy-related industry sector led the IPO market for the third consecutive year, with 35 IPOs, or 16% of the total—up from 30 IPOs (15% of the total) in 2006. Other leading sectors were biotechnology/pharmaceuticals with 25 IPOs (12%), healthcare/medical devices with 21 IPOs (10%), and software with 20 IPOs (also 10%). The number of IPOs by technology-related companies increased 27%, from 84 in 2006 (42% of the total) to 107 in 2007 (52% of the total). Gross proceeds raised from tech-related IPOs soared by nearly 50%,

US IPO Market Review and Outlook  from $9.9 billion (25% of the total) to $14.7 billion (32% of the total). Venture-backed IPOs jumped from 56 in 2006 to 75 in 2007, representing half of all offerings by US-based issuers, and their gross proceeds doubled from $3.70 billion to $7.40 billion. On the other hand, IPOs by private equity–backed companies slumped in 2007. The percentage of profitable companies going public decreased from 64% in 2006 to 62% in 2007, mirroring the average for the prior five years, and in sharp contrast to the 26% in both 1999 and 2000. The median annual revenue of IPO companies decreased from $111.1 million to $87.0 million, primarily due to an increase in smaller tech‑related companies. When the IPO market was its most selective, between 2001 and 2003, the median annual revenue of IPO companies averaged $168.5 million. Although the capital markets shed some of their gains during the fourth quarter, the Dow gained 6.4% in 2007 and Nasdaq ended the year up 9.8%. The average 2007 IPO ended the year 14.8% above its offer price—well below the 24.4% return in 2006. The average first day gain, moreover, was 14.3%, leaving aftermarket performance essentially flat. At year-end, 55% of 2007 IPOs were trading at or above their offering price, compared to 70% in 2006. In 2007, 40 deals were up more than 50% at year-end and 14 had doubled in price—almost exactly equal to the comparable numbers in 2006. Five of the ten best-performing IPOs of 2007 were by Chinese issuers, led by solar cell manufacturer JA Solar Holdings, which ended the year 365% above its IPO price. Rounding out the top three were Argentina’s Mercadolibre, which hosts the largest online trading platform in Latin America (up 311%), and Chinese photovoltaic producer Yingli Green Energy (up 252%). No company saw its stock price double on opening day, but athenahealth—which provides Internet-based business services for physician practices—came close (up 97%). An additional 18 companies saw their stock price increase at least 50% on the first day of trading.

Percentage of Profitable IPO Companies – 1998 to 2007 %

61

56

1998

65 59

62

64

62

2005

2006

2007

105.9

111.1

52

26

26

1999

2000

2001

2002

2003

2004

Source: IPO Vital Signs

Median Annual Revenue of IPO Companies – 1998 to 2007 $ millions 267.5

161.0

144.5

87.0

85.7 35.0

1998

17.9

17.6

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: IPO Vital Signs

The best-performing IPO sectors of 2007 were energy-related, with 35 IPOs gaining an average of 33% by year-end, and software, with 20 IPOs increasing 26% on average by year-end. California maintained its dominant position atop the IPO state rankings with 44 offerings, followed by Massachusetts, which experienced a resurgent tech IPO market, with 20. Texas enjoyed a steady flow of energyrelated IPOs, with 18, while New York produced seven IPOs, and Oklahoma and New Jersey generated six each.

State Rankings – 2000 to 2007 California Texas Massachusetts New York Illinois

347 95 89 88 45

In 2007, 68 IPOs (33% of the total) were completed by companies based in the eastern United States (east of the Mississippi River), while western US–based issuers accounted for 83 IPOs (40%), and foreign issuers accounted for the remaining 58 IPOs (28%). Eastern US IPOs raised

 US IPO Market Review and Outlook $15.6 billion (33% of the total), western US IPOs raised $16.8 billion (35%) and foreign issuer IPOs raised $15.3 billion (32%) of the year’s IPO proceeds. The percentage of IPO companies listing on Nasdaq—the preferred listing choice for many venture-backed and technology companies—edged down from 65% in 2006 to 62% in 2007, while the NYSE’s market share increased from 31% to 36%. Average IPO offering size for companies listing on Nasdaq increased from $124.7 million in 2006 to $126.6 million in 2007, while the average IPO offering size for companies listing on the NYSE climbed from $387.4 million to $400.3 million.

Median IPO Offering Size – 1996 to 2007 $ millions 115.5

116.4

119.0

119.4

113.0 102.6 90.7

84.0

61.0

33.0

30.0

1996

1997

36.0

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: SEC filings

2008 Outlook In broad terms, the US IPO market of the past 15 years or so has gone through four phases: ■

■

■

■

1991 to 1998—Reasonably stable market, producing an average of more than 550 IPOs per year 1999 and 2000—Go-go market characterized by many unqualified IPO companies and rampant price euphoria (although annual deal volume was about 15% lower than in the preceding eight years)

Venture Capital–Backed IPOs – 1996 to 2007 # of deals

73.2 252

120

15.0

1996

58.0 52.0

49.0

47.8

31.3 68

22.4

1997

75

67

13.0

43 22

1998

1999

2000

2001

18

2002

56

23

2003

2004

2005

2006

2007

Source: Dow Jones VentureOne

quarter, which followed an all-time high in early October. Despite a modest dip in the fourth quarter, Nasdaq topped its 2006 performance. The Dow shed another 7.5% in the first quarter of 2008, while Nasdaq plummeted 14.1%. Many observers consider the markets’ prognosis for the balance of the year to be mixed. ■

Capital Market Conditions: Stable and robust capital markets are a leading indicator of IPO activity. In 2007, the Dow produced solid returns but fell short of its 2006 performance, due in part to a 4.5% decline in the fourth

201 46.9

Viewed through this lens, the IPO market of the late 1990s was as aberrant as the market that immediately followed it. We remain fundamentally optimistic about the long-term prospects for the IPO market, but 2008 is likely to be a challenging year for several reasons: ■

66.0 60.2

216

2001 to mid-2003—Very selective market, in which deal volume fell to historic lows and IPO candidates were held to much higher standards Mid-2003 through 2007—Solid market recovery, although not approaching the deal volumes that prevailed for most of the 1990s

Median amount raised prior to IPO (in $ millions)

Economic Growth: Economic growth is a key determinant of strength in the capital markets. After the technologyfueled boom sputtered to an end in early 2001, economic recovery was largely driven by strong consumer spending, boosted by low interest rates, tax cuts

and increased borrowing against home equity as housing values soared. By late 2007, however, the US economy began to sour. Currently adverse economic factors include record-high petroleum prices, rising food prices, the continuing decline in the housing market, ongoing turmoil in the credit markets, the persistence of some core inflation, and the expense of continuing overseas military conflicts.

Impact of Regulatory Environment Corporate governance reforms in the United States have created new

US IPO Market Review and Outlook  responsibilities for public companies and their directors and officers. These changes have helped improve accountability to stockholders, board oversight of management, board member qualifications and investor confidence— but have also increased the cost of being public, both in terms of potential liability and the expense of compliance.

Some Facts About the 2007 IPO Market

In the near term, the new corporate governance environment may deter some IPO candidates, steer them to liquidity through acquisitions or incent them to pursue IPOs in markets outside of the United States. Offshore IPOs by US companies have grown as a percentage of all US company IPOs worldwide, increasing from less than 5% in each year prior to 2004, to 10.9% in 2006 and 13.4% in 2007. In the longer term, however, we believe that corporate governance changes will be assimilated into IPO planning and not pose a major impediment for most companies wishing to pursue IPOs in the United States. Venture Capital Pipeline Venture capitalists depend on IPOs— along with company sales—to provide liquidity to investors. Although a large number of VC-backed companies are in IPO registration, many of these offerings are on hold. Longer term, the pool of IPO candidates will be affected by current trends in venture capital investing, including the timeline from initial funding to IPO. According to Dow Jones VentureOne, the median amount invested from initial equity financing to IPO increased from $58 million in 2006 to $66 million in 2007, and the time from initial equity financing to IPO increased from 6.2 years to 7.1 years. Private Equity Impact Private equity investors also seek to divest portfolio companies or achieve liquidity through IPOs. PE-backed companies are usually larger and more seasoned than VC-backed companies or other start-ups pursuing IPOs, and thus can be strong candidates in a demanding IPO market. The turmoil in the credit markets and sharp reduction in buyout activity that began in late 2007 will probably dampen the flow of PE-backed IPO candidates in 2008.