Friday, July 27, 2012

What is an Emerging Growth Company?

When I hear the term "emerging growth company" I have visions of a computer company operating out of a garage in Silicon Valley.  Or maybe a telecom start-up company in Richardson's Telecom Corridor.  One image I certainly do not have is 134-year old English soccer team from Manchester, England.  But that is exactly one of the beneficiaries of the EGC-status conferred by the federal Jumpstart Our Business Startups (JOBS) Act. 

The JOBS Act created the term Emerging Growth Company and conferred upon EGC's many benefits under the federal securities laws, including fewer financial disclosure obligations.  To be an EGC, a company must have annual revenues of less than $1 billion, have had its IPO after December 8, 2011, have been public for less than five years, and have a public float of its stock of less than $700 million.  I wrote an article on the JOBS Act available here:

I just got back from a family vacation to London where I heard that Manchester United, perhaps the world's most famous soccer team, is going public and will be listed on the New York Stock Exchange.  Somehow, I don't think the 75,000 fans that regularly attend their games at Old Trafford Stadium will fit inside any garage in Silicon Valley.  But just because Manchester United doesn't fit my image of an Emerging Growth Company doesn't mean they don't fit the definition enacted by Congress under the JOBS Act.

Manchester United's registration statement is available here:

As a supporter of the rival English soccer club, Chelsea, I can't say I'd be that upset if the risk factor set forth on page 17 of the registration statement comes to pass: ("[Manchester United] cannot ensure that our first team will be successful in the Premier League or in the other leagues and tournaments in which it plays.  Relegation from the Premier League or a general decline in the success of our first team, particularly in consecutive seasons, would negatively affect our ability to attract or retain talented players and coaching staff, as well as supporters, sponsors and other commercial partners, which would have a material adverse effect on our business, results of operations, financial condition and cash flow.").

Wednesday, July 11, 2012

M&A Deals Under Siege

One of my favorite movies is Under Siege, the film in which Steven Segal portrays Casey Ryback, a Navy cook and former Navy Seal forced into action to save a U.S. battleship from a terrorist takeover led by Tommy Lee Jones. As much as I loved that movie, I was shocked to learn that it was actually nominated for two Academy Awards! See 

Anyway, I couldn't help but think of Under Siege when I read the following statistic in The Economist magazine.  96% of M&A transactions over $500 million faced legal challenges in 2011.  That's up from 39% in 2005.  Thus, any party to a significant M&A transaction should expect to be sued.  That's why it is critical that the board of directors of any company undertaking an M&A transaction carefully plan the transaction process to ensure a fair process and a fair price for the target's shareholders.  That planning should include engaging experienced bankers and transaction lawyers to help walk the company through a process that should be expected to be reviewed and second-guessed in a courtroom after the deal is announced.   

Tuesday, July 3, 2012

How are Delaware Entities Like Rabbits?

Delaware corporate law is popular.  How popular?  Well, almost half of U.S. publicly traded corporations were formed in Delaware. Delaware has more corporate entities, public and private, than people — 945,326 to 897,934.  One address in Delaware (1209 North Orange) is the legal address for more than 285,000 separate businesses!  These statistics all come from one of my favorite bloggers, Sandy Leeds of Leeds on Finance (  

Why is Delaware so popular?  Its corporate law is well-developed.  It has special courts dedicated to corporate law issues; so its corporate justice tends to be swift, fair, and dispensed by judges who specialize in corporate law issues.  But regardless of how Delaware became the go-to state for corporate law, it now enjoys the advantage of familiarity. Virtually every corporate lawyer knows and understands Delaware corporate law, so parties rarely object to doing business under Delaware law.  Even if another state could devise a "better" set of corporate law statutes and courts, corporate lawyers would not be in a hurry to drop decades of precedent and familiarity with Delaware corporate law to get comfortable with another state's laws and practices.  

Like the QWERTY keyboard, it might not be the best layout of letters if one were starting from scratch, but changing keyboards (or state corporate law) after the world has learned and embraced QWERTY (or Delaware) seems unlikely to happen any time soon.