Middle Market Equity Capital Report - Q1 2015

Middle Market Equity Capital Report

Amid Positive Market Conditions, a Decline in Q1 IPO Activity

April 2015 A CohnReznick LLP Report

1

Middle Market Equity Capital Report ― April 2015

Table of Contents

Highlights.................................................................................................1 Q1 IPO Activity.......................................................................................3 Middle Market Insights...........................................................................5 Perspectives from CohnReznick’s Industry Thought Leaders......... 8 Middle Market Industry Observations............................................... 9 Middle Market Snapshot.................................................................. 11 Middle Market Follow-On Activity................................................... 13 Which Banks Made the Middle Market List?.................................. 14 Regulatory Observations................................................................. 15 Summary............................................................................................ 16

3

Middle Market Equity Capital Report ― April 2015

Preface April 23, 2015 Heading out of 2014, a continuation of record-breaking IPO activity was forecasted for 2015. However, Q1 2015 fell far short of expectations and as a result raises more questions than there are definitive answers to explain the 46% drop in IPO activity when compared to Q1 2014.

Dom Esposito

Capital markets observers expected that with continued positive market conditions, as there were through Q1 2015, both issuers and investors would have had a mutual interest in stoking the IPO fire. Through the first three months of the year, the U.S. Department of Labor announced the additions of 257,000, 295,000, and 126,000 jobs, respectively—a cumulative total of 260,000 more jobs when compared to Q1 2014.

When comparing stock market performance for Q1 2015 to Q1 2014, the Dow Jones Industrial Average, S&P 500, and Nasdaq all performed at about the same levels—the Dow was down a fraction while both the S&P 500 and Nasdaq were up fractionally. And just at the tail end of Q1, it was reported that consumer confidence increased, remaining near its highest levels since 2007.

One of the few pleasant surprises of Q1 came at the end of March when the SEC, in a move designed to facilitate the capital raising needs of smaller companies, updated and expanded Regulation A under Title IV of the JOBS Act of 2012. By doing so, investors will have more choices and smaller companies can, if desired, bypass big institutions for their capital needs by offering stock directly to their key constituents and to the general public.

The decline in IPO activity in Q1 2015 may be the result of a very active 2014 where many issuers who were ready and receiving plenty of encouragement from the capital markets ecosystem, dove into the IPO pool. As a result, after such a vibrant 2014, the IPO pipeline heading into 2015 may have been sparse. One could also argue that 2014 IPO activity was the exception and not the norm, but that’s difficult to know until we get a few more quarters under our belt in 2015.

Here is what we know for certain: middle market IPO activity contributes to the strength of the U.S. economy by creating jobs and stimulating growth.

In this, our first report of 2015, we examine Q1 IPO and follow-on activity.

We drill down on middle market transactions and industry-specific data, provide details concerning Regulation A+, outline a list of the most active investment bankers, and offer our observations and insights on those forces exerting upward and downward pressure on the level of activity of equity capital transactions.

Dom Esposito Partner, National Practice and Growth Director

4

Middle Market Equity Capital Report ― April 2015

Alex Castelli Partner, Middle Market Equity Capital Sponsor

Alex Castelli

We are excited to see the impact that Regulation A+ will have on capital formation activities in the middle market. With that being said, we anticipate that, having seen the positive impact of the JOBS Act on capital formation, our representatives in Washington may focus their attention on building a JOBS Act 2.0.

Highlights

Q1 IPO Activity Shrinks After multiple quarters of continued and sustained growth, the number of initial public offerings (IPOs) in the U.S. in Q1 2015 dropped by 46% over the same period in 2014 suggesting that the record-breaking number of IPOs completed last year may have been the exception rather than the new norm.

Middle Market Implications If annual IPO activity continues at the Q1 pace, the U.S. is on track to tally only 165 total IPOs in 2015. The decrease in IPO activity was particularly felt among middle market companies (companies with market caps between $10 million and $2 billion post IPO) which saw only 33 IPOs in Q1 2015, compared to 62 in Q1 2014.

Middle market businesses are the most important growth engine in the U.S. economy and a critical component to job creation. According to the National Center for the Middle Market, that sector includes approximately 200,000 businesses driving over $10 trillion in annual revenues. By increasing access to affordable capital for middle market businesses, the U.S. economy will strengthen and grow exponentially.

Middle market IPOs continue to occupy a large percentage of total IPOs during the same period in 2014. In Q1 2015, more than 97% of IPOs were categorized as middle market compared to 93% in Q1 2014.

A CohnReznick Report

1 5

Highlights Tech and Healthcare IPOs Contract In 2014, technology and healthcare companies took advantage of investors’ appetite for IPOs. In Q1 2015, those industries reversed course suggesting that frothy valuations in the private marketplace may be drawing more attention from would-be candidates. Year-over-year comparisons reflect a 77% and an 81% decrease in technology and healthcare IPOs, respectively. Notable IPO activity increases in life sciences and real estate were encouraging.

Regulation A+ Debuts During the last week of Q1, in a move designed to facilitate the capital raising needs of smaller companies, the SEC updated and expanded Regulation A under Title IV of the JOBS Act of 2012. The new rules, known as Regulation A+, will allow companies to raise up to $50 million in a mini-IPO type offering. Under the new rules, investors will have more choices and smaller companies can, if desired, bypass big institutions for their capital needs by offering stock directly to their key constituents and to the general public.

6 2

Middle Market Equity Capital Report ― April 2015

What Does CohnReznick Think?

With access to affordable capital, the middle market can act as a powerful driver of growth for jobs and the U.S. economy. Even though the decrease in IPO activity in Q1 2015 is concerning, many economic indicators remain positive. Middle market decision makers have plenty of capital raising options including IPO, traditional banks, investment banks, mezzanine lenders, private equity, venture capital, and even crowdfunding. The best form of capital is the one that fits with the strategic objectives of the company.

Q1 IPO Activity

Favorable market conditions continued in Q1 2015—stock markets were consistent, interest rates remained low, and gains in employment continued. Yet, IPO activity dropped by 46% compared to Q1 2014. In Q1 2015, there were 40 IPOs compared to 74 in 2014. Operating company IPOs (excluding SPACs and closed-end funds) followed suit decreasing by 49% to 34 IPOs in Q1 2015 from 67 in Q1 2014.

Figure 1. IPO Activity by Quarter 90 80 70 60 50 40 30 20 10 0

Q1 - 2014

Q2 - 2014 All IPOs

Q3 - 2014

Q4 - 2014

Q1 - 2015

Middle Market IPOs Source: Thomson Reuters/Audit Analytics

A CohnReznick Report

3 1

Q1 IPO Activity When including 2013 as part of a longer term comparison, first quarter IPO activity in 2015 was only two IPOs short of the 42 completed in Q1 2013. This three-year analysis begs the question, “Was 2014 the exception, or has the investment community turned its back on the IPO in 2015 as a source to access capital?” Transaction activity in one quarter, the first quarter in particular, rarely defines performance for the whole year. With nine months remaining in the year, issuers and investors have time to make up the losses from Q1.

Generous valuations from strategic and financial investors, including private equity and venture capital firms in the private sector may have drawn the attention of those middle market companies that were once considering an IPO. With so many sources of capital available to middle market companies, business executives may have chosen a non-IPO source of capital in Q1.

Pipeline through-put could be one of the reasons that Q1 2015 IPO activity lagged behind 2014. Quite simply, most issuers may have been drawn by investor interest in 2014 and received plenty of encouragement from their investment bankers to access the public markets. The push to price in 2014 could have left the IPO pipeline with all but a trickle of activity leading into 2015. Looking forward, 51 IPOs are in the pipeline and scheduled to be issued in Q2.

Signed into law by President Obama on April 5, 2012, the JOBS Act may have encouraged issuers to access the IPO on-ramp in 2014. As the time to prepare for an IPO is typically 12-24 months, those issuers starting the process in 2012 would have priced in 2014 contributing to the flurry of 2014 IPO activity.

2 4

Middle Market Equity Capital Report ― April 2015

Middle Market Insights

Middle market IPOs, those priced by companies with post-IPO market caps of $10 million to $2 billion, represented 97% of operating company IPOs in Q1 compared to 93% in Q1 2014. And while middle market IPOs in Q1 2015 decreased by 47% compared to 2014, the 4% gain of middle market IPOs as a percentage of operating company IPOs is a respectable gain.

Figure 2. Middle Market IPOs Decrease 100 90 80 70 60 50 40 30

Down 46%

20

Down 47%

10 0

All IPOs

Middle Market IPOs 1Q 2014

1Q 2015

Source: Thomson Reuters/Audit Analytics

A CohnReznick Report

5 3

Middle Market Insights Middle Market Proceeds Middle market companies raised approximately $4.8 billion in 2015 versus nearly $6.8 billion in 2014—a decrease of 33%. Even so, the average proceeds per IPO increased to $145 million in Q1 2015 from $109 million in Q1 2014, which is good news for those middle market companies who decided to access the IPO on-ramp this year.

Figure 3. Middle Market Proceeds

Middle Market Sub-Segments

Q1-2014

Q1-2015

Number of Deals Nano Cap ($10-$99 million)

9

Proceeds $

Number of Deals

Proceeds

227,120,000

13

$

73,730,000

Micro Cap ($100-$499 million)

36

$ 2,898,464,000

21

$

1,917,292,000

Small Cap ($500 mil - $2 billion)

17

$ 3,651,699,000

9

$

2,779,245,000

TOTAL

62

$ 6,777,283,000

33

$

4,770,897,000

Source: Thomson Reuters/Audit Analytics

Public Vs. Private Capital The competition to identify and acquire quality investments by both strategic investors and financial investors like private equity and venture capital coupled with a shortage of quality investments, has increased valuations. High valuations have made private transactions a more attractive outcome for middle market companies who once may have pursued an IPO. Private transactions may be winning the competitive battle with IPOs as a source of capital.

In 2014, 79% of Q1 middle market IPOs were private equity or venture capital backed while in Q1 2015, 58% of middle market IPOs fell into that same category. If private equity and venture capital firms can experience greater benefit from a sponsor-to-sponsor transaction, or a sale to a strategic investor, as a result of higher private valuations, they will pursue that option. This competitive market condition could be a contributing factor to the decreased number of IPOs in Q1.

It is quite possible that Q1 2015 IPO activity reflects a growing number of middle market businesses that consider a private transaction a more efficient, less time consuming, and less costly option to raising capital in the public markets.

Even though private transactions are not without challenges, they are absent the regulatory hurdles involved in a public offering.

4 6

Middle Market Equity Capital Report ― April 2015

Middle Market Insights Middle Market Pricing While not a game-changing improvement in middle market pricing, a greater percentage of middle market IPOs priced above their filing range in Q1 2015—24% compared to only 19% in 2014. Almost half of middle market IPOs in Q1 2015 priced within their range (about the same as 2014) and 27% priced below their range in Q1 2015 compared to 29% in Q1 2014 (another nice improvement).

This data could suggest that more middle market companies and their investment bankers are communicating with investors earlier in the process and that the investment banking community is taking a more realistic approach relative to pricing with the mindset of underpromising and over-delivering.

Figure 4. Middle Market IPO Pricing vs. Initial Filing Range

100% 90%

19%

8%

16%

45%

32%

17%

24%

80% 70% 60% 50%

45%

52%

49%

40% 30% 20% 10%

47%

52% 38%

29%

27%

0% Q1 2014

Q2 2014

Below Filing Range

Q3 2014 Within Filing Range

Q4 2014

Q1 2015

Above Filing Range Source: Thomson Reuters/Audit Analytics

A CohnReznick Report

7 5

Perspectives From CohnReznick’s Industry Thought Leaders

“

Even though healthcare, life sciences, and technology seem to attract most of the attention in the capital markets arena, industries such as commercial real estate, hospitality, renewable energy, and retail and consumer products are all impacted by IPO and overall capital market transactions activity. Featured below are industry specific thoughts, insights, and observations from some of CohnReznick’s thought leaders.

S

hake Shack started preparing and serving food from a kiosk in Manhattan’s Madison Square Park and never looked back. They launched one of the hospitality industry’s more successful IPOs. Our restaurant clients took note and have a heightened interest in exploring the IPO as a potential source of capital.

Cindy McLoughlin Partner, Hospitality Industry Practice

I

n the first quarter of 2015 four REIT IPOs combined to raise over $800 million in capital. The total market cap for the REIT industry continues to climb at a very steady pace as investors seek income from dividends while interest rates remain low.

Adam Kleeman Partner, Commercial Real Estate Industry Practice

W

hile the number of IPOs decreased significantly in Q1 2015 compared to Q1 2014, the life sciences industry continued to show some strength. Many of the catalysts that drove life sciences IPO activity in 2014 still exist in 2015. Investors continue to be attracted to issuers with the combination of an interesting story, an experienced management team, and the potential for growth.

Craig Golding Partner, Technology and Life Sciences Industry Practice

B

oth Party City and Etsy priced in early Q2. It is interesting to note that these two businesses are launching at the same time as they are at different ends of the consumer spectrum.

Etsy is a tech company playing in the e-commerce space while Party City focuses on a traditional brick and mortar platform. Watching post-IPO performance of these seemingly divergent companies will be exciting.

Stephen Wyss Partner, Retail and Consumer Products Industry Practice

6 8

Middle Market Equity Capital Report ― April 2015

”

Middle Market Industry Observations

Healthcare and Life Sciences Healthcare and life sciences companies with long development life-cycles and complicated stories to tell investors continue to embrace the IPO as a form of capital that fits their long-term strategic objectives. Most companies in these sectors use the proceeds from IPOs to fund research and development activities and value the possibility of gaining additional access to capital through consequent follow-on transactions. We believe that IPOs in the healthcare and life sciences industries will continue to be elevated by the Testing the Waters and Confidential Filing provisions of the JOBS Act. In Q1 2015, healthcare and life sciences IPOs combined represented 48% of all middle market IPOs; short of the almost 52% the two sectors represented in Q1 2014, but a marked increase from 19% in Q1 2013.

Here, issuers with complex stories to tell have been buoyed by the Testing the Waters and Confidential Filing provisions of the JOBS Act. However, investors may be keeping a more watchful eye on post-IPO performance in these sectors before committing capital.

Figure 5. Q1 Middle Market IPO 2014-2015 Comparison

Tech nolo

r 7%

Othe

3% 3% y ilit Ut

&

Real Estate 12%

lity

Healthcare (ex Life Sciences) 42%

gy

Life Sciences 10%

er

Financial Services 9%

ita

Ut ate ilitie –2% s–3 %

Est

En

Technology 21%

sp Ho

&

% –2

al

gy

Other 11%

ity

er

Re

l ta

i sp

Ho

En

gy 9%

Q1 2015

Q1 2014

Technology

Life Sciences 33%

Financial Services 18%

Life Sciences Healthcare (ex Life Sciences) Financial Services Real Estate Energy & Utilities Hospitality Other

Healthcare (ex Life Sciences) 15%

Source: Thomson Reuters/Audit Analytics

A CohnReznick Report

9 7

Middle Market Industry Observations Real Estate Of interest is the real estate sector’s level of IPO activity in Q1 2015.

Four real estate IPOs, all REITs, were priced in Q1 2015 compared to one in the same period of 2014. We see strong real estate fundamentals continuing into 2015 and the increase in the number of REITs in Q1 demonstrates that investors feel the same way. Rents are growing, earnings are growing faster than inflation, and demand is growing faster than supply in many property types.

Technology Technology sector IPOs decreased a surprising 77% in Q1 2015 when comparing to Q1 2014 activity levels. Only three middle market technology sector IPOs priced this year compared to 13 in 2014.

In 2015, technology company IPOs represented roughly 9% of middle market IPOs. In 2014, the percentage of technology company IPOs was closer to 20% of middle market IPOs. High private valuations

“We believe that public investors remain enthusiastic about new technology sector issues, but technology companies are likely more attracted to alternative sources of capital and fewer new issues are actually making it to market.” ― Alex Castelli, Partner, Middle Market Equity Capital Sponsor and Technology and Life Sciences Industry Practice Leader

and competition from strategic investors and venture capital may be the underlying reasons for the decrease in technology sector IPOs. Frankly, technology companies may perceive and actually realize more benefit by selling equity to private investors, many of whom understand the space and will partner to grow the company further.

Strategic and financial investors see more opportunity to plug-in or add-on the right technology company acquisition which may reward shareholders more than would the public markets. We believe that public investors remain enthusiastic about new technology sector issues, but that as a result of high valuations, issuers may be attracted to the private investment community perhaps reducing the number of new middle market technology IPOs.

8 10

Middle Market Equity Capital Report ― April 2015

Middle Market Snapshot Analyzing Middle Market IPOs

CohnReznick’s Middle Market Snapshot analyzes IPOs conducted by middle market companies―regardless of proceeds generated. CohnReznick defines the middle market as companies with $10 million to $2 billion in market capitalization post initial public offering.

Middle Market IPO Activity

Middle market IPOs were down 47% in Q1 2015. A departure from 2014’s recordbreaking year.

Number of IPOs

Proceeds ($B)

Average Deal Size ($M) 145

6.8

62

109

4.8 33 DOWN 47%

Q1 2014

Q1 2015

UP 32%

DOWN 29%

Q1 2014

Q1 2015

Q1 2014

Q1 2015

Source: Thomson Reuters/Audit Analytics

Number of Middle Market IPOs by Sub-Segment

Nano cap IPOs represented 58% of all middle market IPOs in Q1 2015. They were only 15% of all middle market IPOs in Q1 2014.

50

Q1 2014

Q1 2015

40

36

30 20

17

10

19 12

9 0

Nano Cap

Micro Cap

Small Cap

($10 - 99 million) ($100 - 499 million) ($500 mil - 2 billion)

Nano Cap

Micro Cap

2 Small Cap

($10 - 99 million) ($100 - 499 million) ($500 mil - 2 billion)

Source: Thomson Reuters/Audit Analytics

Proceeds of Middle Market IPOs by Sub-Segment

Middle market IPOs were down almost 50% in Q1 2015. Proceeds from middle market IPOs were down closer to 70%. Nano cap IPOs showed the only gain.

4000

Q1 2014

3500

3651

3000

$ Millions

Q1 2015

2500

2898

2000

2106

1500

1767

1000 500 0

896

227 Nano Cap

Micro Cap

Small Cap

($10 - 99 million) ($100 - 499 million) ($500 mil - 2 billion)

Nano Cap

Micro Cap

Small Cap

($10 - 99 million) ($100 - 499 million) ($500 mil - 2 billion)

Source: Thomson Reuters/Audit Analytics

A CohnReznick Report

11 9

Active Industry Segments

Life sciences IPOs increased to 51% of middle market IPOs and real estate IPOs grew to 12% of middle market IPOs. 50

1Q 2014

45

Number of IPOs

40

Healthcare 42%

35

Technology 21%

30 25 20 15 10

1Q 2015

Life Sciences 33%

Hospitality 2%

Real Estate 2%

Energy & Utilities 3%

Life Financial Services Sciences 10% 9%

Financial Services 18% Healthcare Real 15% Estate 12%

Technology 9%

Hospitality 3%

Energy & Utilities 1%

5 0 Source: Thomson Reuters/Audit Analytics

Private Equity-Backed IPOs

In Q1 2015, 58% of middle market IPOs were backed by private equity.

Source: IssuWorks

70

Private Equity-Backed IPOs

60

Number of IPOs

50 40 30

49/62 79%

20

19/33 58%

10 0

1Q 2014

1Q 2015 Source: Thomson Reuters/Audit Analytics

Companies Filing as EGCs

Filing as an EGC helps middle market companies access the IPO on-ramp by utilizing the “Testing the Waters” and “Confidential Filing” provisions of the JOBS Act.

Companies Filing as EGCs

54/62

87%

Q1 2104

13.2932/33

97%

Q1 2015 Source: Thomson Reuters/Audit Analytics

10 12

Middle Market Equity Capital Report ― April 2015

Middle Market Follow-On Activity The number of follow-on transactions in the middle market slowed in Q1 2015 compared to Q1 2014, but the proceeds raised showed a move upward. Q1 2015 middle market transactions totaled 162 compared to 195 in Q1 2014—a 17% decrease. Proceeds from those transactions increased to $15.5 billion in 2015 from $14.5 billion in 2014—a 7% increase.

Figure 8. Follow-Ons, by Middle Market Subsegment

Q1-2014

Number of Deals

Nano Cap

60

Micro Cap Small Cap TOTAL

Q1-2015

Proceeds $

Number of Deals

Proceeds $ 1,706,191,000

612,734,000

Nano Cap

38

64

$ 3,843,371,000

Micro Cap

40

$ 1,570,410,000

71

$ 10,010,740,000

Small Cap

84

$ 11,947,576,000

195

$ 14,466,845,000

TOTAL

162

$ 15,224,177,000

Source: Thomson Reuters/Audit Analytics

Life sciences and technology industry follow-ons accounted for 67% of Q1 2015 activity (50% in Q1 2014). Not surprising considering that both life sciences and technology companies typically use proceeds from follow-ons to support longer term capital investment in research and development activities. When examining those two industries separately, the real story continues to be the activity level of middle market life sciences companies accounting for 51% of follow-ons in Q1 2015—an increase from 31% in Q1 2014. Middle market technology company follow-ons actually decreased in Q1 2015 to 16% from 19% in Q1 2014. Most exciting here is the gain in the percentage of life sciences follow-ons, which would indicate that investors continue to see opportunity in the sector.

Figure 6. Follow-Ons by Industry

Q1 2015

Re a 6% l Esta

Real Estate 8% Financial

Financial Services 9%

Healthcare (ex Life Sciences) 2%

Services 12%

s

Life Sciences 31%

ie

te

Energy & Utilities 11%

Tec

%

Technology 19%

ilit

il–2

Ut

ta

&

Re

gy er En 7%

Hospitality 1%

Other 15%

Other 6%

Retail 1% Hospitality 2%

hno 16% logy

Q1 2014

Life Sciences 51% Financial Services 7%

Healthcare (ex Life Sciences) 1%

Technology Life Sciences Healthcare (ex Life Sciences)

Financial Services Real Estate Energy & Utilities

Hospitality Retail Other Source: Thomson Reuters/Audit Analytics

A CohnReznick Report

13 11

Which Banks Made the Middle Market List?

Thirty-four different investment banks acted as a bookrunner on at least one middle market IPO in Q1 2015 (33 IPOs), compared with 35 investment banks in Q1 2014 (62 IPOs). The total number of middle market IPOs reflected in the table below greatly exceeds the 33 total middle market IPOs because most deals involve more than one bookrunner.

Investment Banker

12 14

Number of Bookrun IPOs

Investment Banker

Number of Bookrun IPOs

Merrill Lynch Pierce Fenner & Smith

7

Sterne Agee & Leach Inc.

2

Goldman Sachs & Company

5

BMO Capital Markets

1

JP Morgan Securities Inc.

5

Canaccord Genuity

1

Citi Group Global Markets Inc.

4

Chardan Capital Markets LLC

1

Cowen & Company

4

JMP Securities

1

Jefferies Group

4

Ladenburg Thalmann & Company

1

Morgan Stanely & Company

4

Maxim Group LLC

1

Piper Jaffray

4

Nomura Securities International Inc.

1

RBC Capital Markets

4

Pacific Crest Securities Inc.

1

Barclays 3

Robert W. Baird & Company Inc.

1

Wells Fargo Securities LLC

3

Roth Capital Partners Inc.

1

Credit Suisse Securities (USA) LLC

2

Sandler O’Neill Partners L.P.

1

Deutsche Bank Securities Inc.

2

Sidley Austin LLP

1

Keefe Bruyette & Woods Inc.

2

Stifel Nicolaus & Company Inc.

1

Leerink Partners LLC

2

SunTrust Robinson Humphrey

1

Oppenheimer & Company

2

UBS Investment Bank

1

Raymond James & Associates Inc.

2

ViewTrade Securities

1

Middle Market Equity Capital Report ― April 2015

Regulatory Observations

Regulation A+ Since the inception of our Middle Market Equity Capital Reports in 2014, we have been updating readers on the progress of the implementation of various provisions of the JOBS Act and the introduction of new ideas to stimulate middle market capital formation. Our reports have featured dialogue concerning non-accredited equity crowdfunding, the tick size pilot, and Regulation A+.

On March 25, 2015, in a move designed to facilitate the capital raising needs of smaller companies, the SEC updated and expanded Regulation A under Title IV of the JOBS Act of 2012. The new rules, known as Regulation A+, will allow growth companies to raise up to $50 million from accreditied and unaccredited investors in a mini-IPO type offering. By doing so, investors will have more choices and smaller companies can, if desired, by-pass big institutions for their capital needs by offering stock directly to their key constituents and to the general public.

Read our full alert on this topic on our website.

Regulation A+ will provide an additional option for private companies to raise capital. While the offerings will be subject to SEC review, companies will be able to market their offerings publicly via social media.

The reduced amount of ongoing reporting and state preemption should help middle market companies manage the cost of raising capital.� ― Alex Castelli, Partner, Middle Market Equity Capital Sponsor and Technology and Life Sciences Industry Practice Leader

A CohnReznick Report

15 13

Summary

Each quarter seems to unveil its own unique landscape complete with upward and downward market forces—some glaringly apparent and others less so. Middle market equity capital transactions took a breather in Q1. However, positive market conditions prevailed throughout most of the quarter and are likely to remain supportive of additional IPO and follow-on activity as we move through the remainder of 2015.

With fewer IPOs making their debut in Q1, transactions within the life sciences sector continue to be brisk while technology companies seemed to gravitate to alternative sources of capital to fulfill their needs. A pleasant surprise in Q1 was the increase in real estate sector IPOs. Those companies with longer term needs for access to capital, like those in life sciences, healthcare, and technology sectors, will continue to access the IPO on-ramp for as long as it meets their strategic capital raising needs, and for as long as there is investor interest.

The SEC acted to boost access to capital for small companies by issuing rules to update and expand Regulation A under title IV of the JOBS Act, known as Regulation A+. Even though we may not know the full impact of Regulation A+ on the level of capital markets transactions for quite some time, its implementation should act to stimulate additional capital formation, which is good for the middle market and the U.S. economy.

As the IPO pipeline replenishes, Q1 has given us plenty of opportunity to offer analysis, observations, and insights, but more than anything else, we are left with many questions with answers which will unfold as we move forward through 2015.

14 16

Middle Market Equity Capital Report ― April 2015

What Does CohnReznick Think?

Increasing the sources of capital for middle market companies, encourages middle market business executives to engage in expansionary strategies, including developing new products and services, updating technology, expanding into new geographical markets, purchasing equipment, hiring more workers and acquiring new offices, plants, and facilities. Helping to facilitate access to affordable capital powers the middle market and drives the U.S. economy forward.

About CohnReznick’s Public Companies Group Utilizing comprehensive resources and deep industry expertise, the professionals of CohnReznick’s Public Companies Group understand the goals of both middle market companies and investors to deliver timely and appropriate solutions and opinions. We understand the challenges and opportunities of the capital markets and possess the forward thinking technical skills and experience necessary to address the needs of clients, investment bankers, investment advisors, attorneys, lenders, investors, managements, audit committees, and the U.S. Securities and Exchange Commission and other regulatory authorities.

• • • • • • • • • • • • • • •

Alex Castelli, CPA, Partner, Technology and Life Sciences Industry Practice Leader Anton Cohen, CPA, Partner, Renewable Energy Industry Practice Co-National Director Dom Esposito, CPA, Partner, National Practice and Growth Director George Gallinger, Principal, CohnReznick Advisory Group − Governance, Risk, and Compliance National Director Craig Golding, CPA, Partner, Technology and Life Sciences Industry Practice Tim Kemper, CPA, Partner, Renewable Energy Industry Practice Co-National Director David Kessler, CPA, Partner, Commercial Real Estate Industry Practice National Director Adam Kleeman, CPA, Partner, Commercial Real Estate Industry Practice Gary Levy, CPA, Partner, Hospitality Industry Practice Leader Cindy McLoughlin, CPA, Partner, Hospitality Industry Practice Steven Schenkel, CPA, Partner, Chief Risk Officer Richard Schurig, CPA, Partner, Retail and Consumer Products Industry Practice Leader Mark Spelker, CPA, Partner, National Director of SEC Services Jeremy Swan, Principal, CohnReznick Advisory Group Stephen Wyss, CPA, Partner, Retail and Consumer Products Industry Practice

CohnReznick Advantage for Capital Markets Industry Insights, Optimized Solutions • Partners immersed in supporting public companies and capital markets transactions who understand your business drivers.

• Support from industry specialists to offer comprehensive industry-specific solutions and insights.

• Engagement teams utilize the Firm’s broad resources to provide innovative solutions and breakthrough ideas.

Transformative Advice • Timely, relevant views about critical economic, business, legislative, tax, and global news and emerging trends in the capital markets.

• Thought leadership reports, alerts, conferences, and events delivered in the context of what these issues mean to public companies, companies considering a public filing, the capital markets, and your business.

Responsive Culture • Our partners are empowered and entrepreneurial decision makers.

• They draw on our depth of knowledge and expertise to provide faster, smarter, more efficient service.

Capital Markets Dexterity • Preparation, valuation, structuring, and facilitation of capital markets transactions, and introductions to capital sources.

• Assistance with acquisitions, dispositions, liquidity events, and other capital-raising needs.

Proactive, Resourceful Service • A true partner-led service model ensures direct access and active partner management.

• Accountability and expectations are developed to meet your needs and documented in the CohnReznick Client Service Plan.

National and Global Reach • With offices in 30 cities, we seamlessly and cost-efficiently serve clients on a regional, national, and international basis.

• Companies with international interests in 100+ countries are served through our membership in Nexia International, a global network of independent accountancy, tax, and business advisors.

A CohnReznick Report

17 15

About CohnReznick LLP CohnReznick LLP is one of the top accounting, tax, and advisory firms in the United States, combining the resources and technical expertise of a national firm with the hands-on, entrepreneurial approach that today’s dynamic business environment demands. Headquartered in New York, NY, and with offices nationwide, CohnReznick serves a large number of diverse industries and offers specialized services for middle market and Fortune 1000 companies, private equity and financial services firms, government contractors, government agencies, and not-for-profit organizations. The Firm, with origins dating back to 1919, has more than 2,700 employees including nearly 300 partners and is a member of Nexia International, a global network of independent accountancy, tax, and business advisors. For more information, visit www.cohnreznick.com.

16

Middle Market Equity Capital Report ― April 2015

1212 Avenue of the Americas New York, NY 10036 212-297-0400 www.cohnreznick.com

CohnReznick is an independent member of Nexia International

CohnReznick LLP Š 2015 Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

17

Middle Market Equity Capital Report ― April 2015