Can the good times last? Four factors shaping M&A in the second half of 2019

Guest post by John M. Reiss and Gregory Pryor of White & Case LLP

Many of the factors that have underpinned recent M&A activity remain in place, but concerns are mounting.

Positive drivers of M&A, including the strength of the US economy, the availability of financing and the strategic imperative to consolidate or transform for many corporates have underpinned transactions.

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Vesting Incentive Equity: Time vs. Milestone Vesting Schedules

Guest post by Paul Jones of Venture Best

One of the defining features of the Silicon Valley model of high-risk/reward startups is the allocation of incentive equity to pretty much every member of the startup’s team. Sharing the upside with the team is a great way to build esprit de corps, reduce cash compensation expense, and provide an incentive for employees to stick around as the startup grows.

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An Important Milestone – First Supervised Security Token Offering

Guest post by Andrey Yanai of Barnea Jaffa Lande & Co.

After a long wait, the US Securities and Exchange Commission (SEC) has permitted a startup company to raise funds from the general public through a supervised security token offering (STO) under Reg A+ regulations. Effectively, this is the first time a public STO was granted regulatory approval in the United States. In light of the great importance attached around the world to the US capital market generally, and the position of the SEC specifically, this is a most significant development.

The Reg A+ regulations allow small- and medium-size companies that are unable to meet the heavy financial burden of an initial public offering (IPO) to raise up to $50 million in a crowdfunding track, under supervision.

Several days ago, the SEC permitted the company Blockstack Token LLC to perform the fundraising. Several days thereafter, the approval of a different company, YouNow Inc, was also reported. The founders of Blockstack said that the cost of the process reached $2 million and that the expected total fundraising amount is $28 million. This is an unusual and non-economical fundraising cost, though it is expected subsequent STO fundraisings will be much more cost-effective.  

This joins a list of other developments in the evolution of blockchain technology as it attempts to adjust to the strict demands of securities law. Among these developments, the Framework for “Investment Contract” Analysis of Digital Assets published by the SEC in April 2019 is worth noting. There, the implementation of the Howey test for digital assets was set forth. In it, the SEC analyzes when a digital asset constitutes an “investment contract,” i.e. a security subject to all the regulatory requirements. While it is true that theoretically the SEC left open the possibility that a certain digital asset would be classified as a “utility” and would not constitute a security, in effect, it seems that almost any offer of tokens meets the Howey test.

Additionally, the desired SEC approval for these STOs comes after a line of aggressive enforcement actions against companies that raised funds through an ICO, culminating in a suit filed by the SEC in June 2019 against the messaging app Kik. According to the SEC, this was a pubic fundraising in violation of federal securities laws.

In conclusion, it appears that while the SEC takes a harsh stance against companies it believes operate in violation of the rules, it is willing to give its official stamp of approval to companies prepared to toe the line dictated by the regulations. 


Andrey Yanai 

Andrey, a lawyer in the firm’s Capital Market Department, specializes in advising private and public companies, with an emphasis on dual companies.

Barnea

Barnea, Jaffa, Lande & Co. is a leading commercial law firm in Israel. We have earned an esteemed reputation for our extensive legal expertise in international activities. More …

LLCs and Convertible Debt – Too Good to be True?

Guest post by Scott J. Pinarchick, William J. Bussiere, Jr. of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Founders choosing a structure for their business are often drawn to the limited liability company, or LLC, for its overall flexibility in both taxation and governance matters. And founders seeking access to early capital, not to mention seed investors themselves, are often drawn to the convertible note as a simple, less expensive means to raise funds. But LLCs and convertible debt don’t always mix. LLCs are generally treated as partnerships for federal income tax purposes and the rules regarding debt in a partnership are different than that of a corporation.  LLC members should be aware of the risks associated with the issuance of debt instruments and when such debt is repaid, converted, assumed or discharged.

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Dual-Track Processes: How to Turbocharge Your Exit

Guest post by Michal Berkner, Josh Kaufman, James Foster from Cooley M&A blog

Exiting an investment is an inherently uncertain process. Even for a thriving business with a viable equity story, committed stakeholders and the right advisers, the final deal terms and valuation are typically guided by factors beyond a company’s control. These include prevailing market sentiment, current appetite for acquisitions in a particular sector and the political and economic environment, all of which can change well within a given transaction timetable. In the face of a global economic slowdown, ongoing trade wars, Brexit, heightened market volatility and other sources of uncertainty, it is becoming increasingly important to consider how deals can be run to maximize transaction certainty and achieve optimal valuation.

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Private Equity, Venture Capital, and Hedge Funds May Get Boost from SEC

Guest post by Alexandra M. Fenno , Lauren C. Jackson , John I. Sanders , Jeffrey T. Skinner from Kilpatrick Townsend & Stockton LLP

On June 18th, the SEC issued a concept release (the “Concept Release”) seeking public comment on ways to simplify, harmonize, and improve the rules related to private securities offerings.[i]  The Concept Release contains several elements, three of which suggest that the SEC may take action that would benefit private investment funds:

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