Allegiancy, a commercial real estate asset management company headquartered in the Boulders office park, on Monday began a push to sell shares to potential investors, becoming among the first handful of businesses in the U.S. to run a public stock offering using new federal capital raising rules known as Regulation A+.
The process, which has been dubbed a mini-IPO or IPO-lite, was created through the JOBS Act in 2012 and finalized by the SEC last year. It’s designed to make it easier, cheaper and faster for smaller companies to raise capital through limited stock offerings and allow average investors to buy in.
Previously, most equity offerings from smaller companies were limited to accredited investors and capped at lower dollar amounts. The new rules also lift restrictions on advertising an offering, most of which are typically policed by state and federal regulators.For Allegiancy, founded in 2013 by brothers Steve and Chris Sadler, the new rules allow anyone to buy a piece of a company that manages about 5.5 million square feet of mostly Class-A office buildings in the U.S.
“We can get out there and tell our story to anybody who will listen,” said Steve Sadler, who presented the company’s Reg A+ ambitions on Monday at the South by Southwest Festival in Austin, Texas.
Allegiancy’s unveiling at the popular festival coincided with it receiving its qualification letter from the SEC, which allowed it to begin accepting money from investors as of 10 a.m. Monday.
It has an initial per-share price target of $14 and will look to sell about 2.5 million shares. It must hit a minimum of $15 million to close the offering and has the ability to go up to $35 million. If its raise is successful, Allegiancy’s shares will be listed on the OTCQX stock exchange. The company will apply for the ticker symbol ALLC.
Hitting its goal, which could take 60-90 days, would make Allegiancy’s offering the largest Reg A+ offering in the country to date, Sadler said.
“Boldly assuming we’re successful, at $30 million we’ll be the biggest.”
The company, which oversees property management, leasing, construction, financing and other day-to-day operations of commercial buildings across the country, has been among the fastest-growing companies in Richmond in recent years. Following on a more traditional $5 million capital raise last year, this latest raise is designed to fuel that continued growth, giving it the funds to acquire property management portfolios and expand into new markets.
Allegiancy will hit the ground running with a three-pronged approach to getting the offering out to the public, Sadler said.
It’s taking the traditional IPO avenue of hiring an investment banking firm – in this case, WR Hambrecht out of San Francisco – that will take the offering to networks of broker-dealers. It’s also doing marketing campaigns on crowdfunding and social media sites. The third step is hiring New York-based Weild & Co. to call on institutional investors, mutual funds and private equity investors.
That will all cost the company about $500,000 in direct expenses, Sadler said, including legal fees, PR and advertising costs.
When it does call on those institutional investors, Sadler said the Reg A+ offering allows he and his brother and other insiders to maintain their controlling interest, rather than giving up equity in a more traditional private placement offering.
“That’s the beauty of Reg A+: you have an opportunity to raise capital and still maintain control,” he said, adding that he and his brother will own about 2.5 million shares of the company after the offering. “You’re really bypassing most of the old guard gatekeepers.”While Allegiancy is among the first companies in the country – let alone in Richmond – to take advantage of the new rules, Sadler thinks it will catch on quick, both nationally and locally, as a new way to raise money.
“What’s happening is very much viral. People start to pick up on this as an option,” he said. “I think you’re going to see a snowball, and there’s enough entrepreneurial spirit in Richmond that I don’t think Richmond is going to be slow to it.”
Rob Kaplan, a founder and managing partner of Richmond law firm Kaplan Voekler Cunningham & Frank who has built a practice around the burgeoning Reg A+ scene and recently published a book on the topic, agrees with Sadler that it won’t take long for this new way of raising money to catch on.
“I think you’re going to see a big wave happening in the next 45 days,” Kaplan said.
Kaplan said most companies will likely look to raise $7 million, up to the federally mandated $50 million cap. Companies are limited to raise $50 million in any trailing 12-month period. He said Reg A+ will attract younger companies, but likely those that are considered growth-stage or late-growth-stage companies.
“I don’t believe the Reg A+ is the realm of the true startup. You’re going to have an element of maturity to the company,” he said.
Among the challenges as the Reg A+ matures, Kaplan said parts of the finance industry such as analyst coverage and trading portals must still be developed to handle this new wave of stocks.
“This is a market that I think for the foreseeable will be dominated by retail investors or smaller institutional guys with a different set of priorities,” he said.
Since the rules were enacted, Kaplan said he’s seen filings with the SEC from companies in life sciences, biotech, real estate and software – even a professional soccer team is trying out a Reg A+ raise.
“We’re really seeing stuff all over the board here,” Kaplan said.
His firm is working with a couple other local companies that are pushing toward Reg A+ offerings and sees the Richmond market as having a draw for Reg A+ offerings in real estate and consumer oriented businesses. On the consumer side, he sees potential for companies in industries that are able to build a fan base and could raise money while allowing customers to own a piece of their favorite brand.
“There are a lot of microbreweries that aren’t going to be the next Budweiser, but could be a very viable investment for people locally or regionally,” Kaplan said as an example. “That was the intent behind the law. It’s intended to open a whole other audience to a new diverse set of investments.”