Benjamin M. Farber Discusses IPOs, SEC and Investment Bankers

ACV Auctions IPO now in hands of SEC and investment bankers

ACV Auctions filed its S-1 filing this month indicating its intent to go public on the NASDAQ stock exchange.

If the initial public offering is executed, ACV will become the third high-tech startup in Buffalo to go public in the last decade, following Synacor Inc. in 2012 and Athenex in 2017.

But while ACV has formally declared its intent to go public, the actual process involves an immense amount of work.

Business First spoke with Benjamin Farber, Phillips Lytle LLP partner and IPO expert, about the process.

Public speculation about an ACV go-public event was sparked by a series of moves last year, including C-suite hires and board appointments that added significant public company experience to ACV leadership ranks.

The company was busy behind-the-scenes in the latter half of 2020 as well, submitting a confidential form S-1 with the U.S. Securities and Exchange Submission.

The “confidential” process was created in the federal JOBS Act, passed in 2012, which allowed emerging growth companies to put a draft S-1 of sorts in front of regulators.

“It allows for you to have a dialogue with the SEC about starting work on a registration statement,” Farber said. “If you look at the documents (which are now publicly available), you’ll see they had a number of amendments leading up to their S-1 submission.”

Indeed, ACV submitted draft registration statements on Dec. 11, Jan. 22 and Feb. 11 before it officially filed its S-1 document Feb. 26.

The S-1 is a lengthy prospectus that is designed to give potential investors a thorough explanation of the business. Among the many pieces of information it contains are a list of underwriters that will play a key role in the process going forward. In ACV’s case, those underwriters include Goldman Sachs & Co., JPMorgan, Citigroup, BofA Securities and Jefferies, among others. Those investment banks are crucial and motivated evangelists for the company – they will buy shares directly from the company and bring them to the expansive world of public market investors.

ACV is still working hand-in-hand with the SEC to make sure it is representing itself accurately, Farber said.

“They’’ll be assigned an SEC examiner and they will be reviewing that document, along with the company’s website and articles and communications” that involve ACV, Farber said. “The scope and the responsibility is to make sure the disclosure is true and that they are accurate and consistent with communications that are out there.”

That’s the regulatory side. On the investment side, the underwriting banks will work with their own book of investment firms and equity analysts, hammering out an approximate value of the company and thus its shares.

That’s why ACV has tentatively said it is hoping to raise $100 million, but has yet to announce how many shares it will sell, and how much it will charge for them. Those details will come into focus in a process traditionally referred to as a “road show,” where the company and its underwriters make a series of presentations to potential buyers of its stock.

Prior to Covid-19, this would have been a whirlwind tour of the tidy suburban offices and towering downtown spaces where money managers pull the levers of American finance.

Today, the stakes are still high. They’ll just be taking place via Zoom, Farber said.

The share price will be its own roller-coaster worthy of longterm attention, especially since pre-IPO shareholders can cash out six month from the listing date.

But for ACV, it’s fairly straightforward. The higher that intersection of banks, analysts and investment firms decide to value the company, the more they’ll spend on its shares, Farber said. The more ACV can charge for a piece of its company, the more cash it will have to spend on its race for marketshare in a fast-changing, multi-billion dollar industry.

The share pricing might be a straightforward process, but results are highly variable. Tech IPOs, in particular, can quickly catch helium. To use a recent example, data warehousing firm Snowflake initially set its expectations to sell shares in the $75 to $85 range, ended up revising that projected range to $100-$110 per share, and finally priced shares in its Sept. 16 IPO at $120 per share. Within a day, as demand swarmed and shares changed hands to their second- and third-generation owners, the price was above $300. Nearly six months later and they’re selling at around $270.

This is an extreme example of a common phenomenon these days.

“The challenge is finding that goldilocks, where the company is making a profit, it’s valued correctly and there is some appreciation in the near-term that satisfies the investors who are buying it,” Farber said.