Mid-Year 2011 IPO Proceeds Exceed $26 Billion, Near 2007 Level

With 93 completed offerings in the first six months of 2011, the IPO market is comfortably ahead of last year’s pace of 70 IPOs through the first half of the year.  Companies have generated more than $26 billion in IPO proceeds through the end of June, compared to $9.8 billion in the same period last year.  Further, 2011’s six-month total exceeds the total for all of 2009 ($24.8 billion) and nearly matches 2008’s yearly total of $28.14 billion.

At its current pace, the 2011 market may approach the aggregate proceeds reached in the 2007 IPO market. In that year, 282 IPOs generated $60.59 billion in proceeds, the highest annual total of any year since 2000. The six-month total in 2007 was $29.28 billion, very close to what this year’s market has achieved so far.

This year the market has already seen five IPOs top $1 billion in proceeds.  Only two offerings surpassed the $1 billion mark in all of 2010, although one was General Motors’ $15.77 billion mega-deal.  The largest IPO in the first half of 2011 was the HCA Holdings’ $3.78 billion offering on March 9th.  Of 2011’s 93 IPOs, 28 were completed by non-U.S. companies, which is close to last year’s pace when 57 issuers incorporated outside the U.S. went public in the U.S. Chinese companies account for more than half (15 of 28) of this year’s deals by foreign issuers. 

The information reported herein was gathered using IPO Vital Signs, a Web-based system that includes all SEC registered IPOs, including REITs and those non-U.S. IPO filers seeking to list in the U.S. markets. IPO Vital Signs does not track closed-end funds, best efforts or non-underwritten deals, or IPO offerings for amounts less than $5 million.

Exchange Offer by Accounting Successor Following Reverse Spin-Off

Universal American Corp. (New UAM) was formed pursuant to a separation agreement dated December 30, 2010, whereby all of the businesses of the predecessor Universal American Corp. (Old UAM) other than its Medicare prescription drug business were transferred to New UAM.  Simultaneously with execution of the the separation agreement, Old UAM entered into an agreement and plan of merger which, among other things, provided for the acquisition of the Medicare prescription drug business by CVS Caremark Corp. for cash consideration of approximately $1.25 billion.  

To accomplish the split-off from Old UAM, New UAM registered common stock valued at $623.7 million and non-voting common stock valued at $31 million on Form S-4 (SEC file no. 333-172691, declared effective on 4/4/11).  The merger agreement and separation agreements are included as Annex A and Annex B, respectively.  Paul, Weiss, Rifkind, Wharton & Garrison served as counsel to Universal American, and Davis Polk & Wardwell advised CVS Caremark.  The Registration Statement presents unaudited combined condensed financial statements that represent a "carve-out" of the historical results of operations, assets, and liabilities attributable to UAM's Medicare prescription drug business.  New UAM is considered as divesting the Medicare Part D Business of Old UAM and is treated as the "accounting successor" to Old UAM for financial reporting purposes in accordance with Accounting Standard Codification (ASC) No. 505-60, Spin-offs and Reverse Spin-offs (ASC 205-2-45). 

When the reverse spin-off was consummated on April 29, Old UAM sold 1.6 million 8.5% Ser. A mandatorily redeemable preferred shares in a private placement for $40 million.  Proceeds from this issuance were used in part to finance the cash consideration to Old UAM shareholders in the sale of the Medicare prescription drug business.  New UAM filed a Form S-4 on July 15 to offer shares in exchange for the Ser. A preferred shares that are substantially identical to the outstanding shares except that they are registered under the 1933 Act and have no transfer restrictions or registration rights (file no. 333-175591).  

SEC Provides More Guidance and Exemptions for Security-Based Swaps

Title VII of the Dodd-Frank Act created a new regulatory framework for over-the-counter derivatives, authorizing the SEC to regulate security-based swaps and the Commodity Futures Trading Commission to regulate other swaps.  Under Dodd-Frank, starting July 16, 2011, security-based swaps are defined as “securities” subject to existing federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934.  

The SEC provided additional guidance on July 1 to clarify which U.S. securities laws will apply to security-based swaps starting July 16.  Interim final rules provide certain conditional exemptions under the Securities Act (Rule 240), the Exchange Act (Rule 12a-11 and Rule 12h-1(i)), the Trust Indenture Act (Rule 4d-12) and other provisions of the federal securities laws to allow certain security-based swaps to continue to trade and be cleared as they have pre-Dodd-Frank.  This interim relief will remain in effect until the compliance date for final rules that the SEC may adopt further defining the terms “security-based swap” and “eligible contract participant.”  

By Exemptive Order effective on July 1, the SEC granted temporary relief clarifying that a substantial number of the requirements of the Exchange Act applicable to securities will not apply to security-based swaps when the revised definition of security goes into effect on July 16.  The prohibitions on fraud and manipulation will continue to apply to security-based swaps after that date.  To enhance legal certainty for market participants, the SEC also provided temporary relief from provisions of U.S. securities laws that allow the voiding of contracts made in violation of those laws.  

The purpose of the exemptions is to allow market participants to continue to enter into those security-based swaps that under current law are defined as security-based swap agreements as they do today, and to minimize disruptions and costs to the security-based swap markets that could otherwise occur on July 16.  The SEC intends to monitor closely the transition of the derivatives markets to regulated markets and to determine to what extent, if any, additional regulatory action may be necessary.  Public comments on the exemptions are due July 15.