Case Study: NPM’S Buy-Side Auction Model

Private Auctions Process Part 4

Part 4 in the Nasdaq Private Market series on private company secondary auctions.

In 2018, Nasdaq Private Market (NPM) began the creation of a new transaction model while working with a private business to business company valued at over $1 billion. The resulting model was what we now call the “buy-side auction”, and led to a successful transaction in which winning bidders were able to purchase shares in the company and provide liquidity to employees eligible to sell in this transaction†. The secondary transaction closed just a few months after their most recent round of funding and resulted in a final clearing price above the last round’s price per share of preferred stock. NPM, along with our client, identified both existing and new investors that included sophisticated venture capital investors, institutional funds, and Fortune 500 companies with collective assets under management of more than $100 billion. The company’s growth, executive team, and investors contributed to the company’s ability to attract new investors and saw an increased appetite for additional investment from existing investors.

After the buyers had been assembled and permissioned by the company to participate, disclosure materials were shared via NPM’s confidential data room. Buyers were given two weeks to review the materials and had the option to use the week-long bidding process as additional time for research and meetings with the company. Calls and meetings with all interested buyers were conducted in order to provide buyers with information they deemed to be sufficient to make an investment decision. The company had originally forecasted the maximum sellable amount (e.g., 10,000,000 shares) and elected to only set a price floor that bidders would have to bid at or above. Armed with this information, buyers participated in the seven-day bidding process to enter bids for a number of shares at a particular price per share (e.g., $20/share for 1,000,000 shares).

During the bidding period, NPM received several bids from a majority of the buyers, exceeding demand projections by 95% (e.g., 10,000,000 projected, but 19,500,000 shares bid for). The clearing price was calculated using the lowest bid that cleared the maximum projected sellable amount. This resulted in a clearing price that was calculated at a premium to the last round of preferred. In this particular transaction, several of the buyers submitted winning bids and were allocated share amounts according to their bid sizes. Buyers with winning bids were then permissioned into the tender offer process where the company’s eligible shareholders were given the opportunity to sell their shares at the clearing price. The entire process lasted approximately eight weeks. This transaction ended successfully by providing eligible sellers with access to liquidity at a competitive offer price and giving investors the chance to invest in what they believed was an attractive investment opportunity.

†The results of this transaction are not indicative of all results for other transactions of this type. The bid prices in other transactions may be placed at a discount, and sellers may not accept these prices in the offer.

PLEASE READ THESE IMPORTANT LEGAL NOTICES AND DISCLOSURES:

This material, including without limitation to the statistical information herein, is provided for informational purposes only.  The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent that the information is accurate or complete.  The information should not be reviewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision.  You should obtain relevant and specific professional advice before making any investment decision.  Nothing related to the material should be construed as a solicitation, offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction.

Investing in private company stocks is speculative and involves a high degree of risk. You must be prepared to withstand a total loss of your investment. You are strongly encouraged to complete your own independent due diligence before investing in private company stock, including obtaining additional information, opinions, financial projections, and legal or other investment advice.

Nasdaq Private Market, LLC is not: (a) a registered exchange under the Securities Exchange Act of 1934; (b) a registered investment advisor under the Investment Advisors Act of 1940; or (c) a financial or tax planner, and does not offer legal, financial, investment or tax advice to any user of the Nasdaq Private Market, LLC website. Securities-related services are offered through NPM Securities, LLC, a registered broker-dealer and alternative trading system, a member FINRA/SIPC and a wholly-owned subsidiary of Nasdaq Private Market, LLC. Securities in transactions conducted through NPM Securities, LLC are not listed or traded on The Nasdaq Stock Market LLC, nor are the securities subject to the same listing or qualification standards applicable to securities listed or traded on The Nasdaq Stock Market LLC.

All technology and securities-related services are subject to standard terms and conditions applicable to each service. For terms and conditions applicable to use of each such service, prospective customers please contact sales@npm.com, and current customers please refer to your contract with Nasdaq Private Market, LLC or its relevant affiliate or subsidiary relating to such service.

Nasdaq Private Market

Nasdaq Private Market

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