Tuesday, May 5, 2015

At the Market Offering --- UPDATED

Announcement of ATM agreement

"MicroVision, Inc. (MVIS), a leader in innovative ultra-miniature projection display and imaging technology, today announced it entered into a $6 million At-the-Market (ATM) equity offering agreement with Meyers Associates, L.P. (doing business as BP Capital, a division of Meyers Associates, L.P.), or BP Capital, on May 5, 2015."

There's a lot of worry today over the company doing an ATM offering. While I am not a financial expert, I will offer the following: 

1) This agreement exists to ALLOW the company to raise money through at the market price sales IF it needs too. They haven't done any dilution or raised any money yet, and there is not a guarantee that they will.

From the agreement:

Under the ATM equity offering sales agreement, sales of common stock, if any, through BP Capital, will be made by means of ordinary brokers’ transactions, in negotiated transactions, to or through a market maker other than on an exchange or otherwise, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices and/or any other method permitted by law."

2) In my opinion -- a company beginning a major ramp-up of production and sales, should have maximum financial flexibility. We may well be financially set for any contingencies that occur during ramp up - then again, it's possible that some unforeseen problem, expense -- or opportunity may present itself that requires a rapid response from the company. Having the ability to raise funds as necessary is sound strategic and financial management.

3) It is possible that the price may spike significantly higher in the near future with a product announcement. If those circumstances occur and the company has this particular agreement in its pocket, the company could easily and rapidly raise money for operations or reserves with minimal impact on the shareholders.

4) ATM funding can be an indicator that some positive news about a company is imminent. From Wikipedia "ATMs can be positioned in advance of an upcoming liquidity event or major milestone to take advantage of increased liquidity and a rising stock price. From Morrison-Foerster

5) Consider the Market Capitalization implications: I have compared the market cap of MicroVision to that of Oculus Rift before. (I believe they are comparable, and the value comparison is interesting. The explanation is here.)

So,  consider MicroVision at a market cap equivalent to Oculus Rift of 2 billion dollars. 

With the current 46,220,000 shares, Microvision is worth $43.27/share.

If MicroVision uses ALL of the ATM tomorrow, and creates 2 million shares to raise six million dollars.... with the same Market cap as Oculus Rift, Microvision shares would be worth $41.47.

I found the following reference about ATM programs: 

From Goodwin-Proctor

"Benefits of an ATM Offering Program
Raising equity capital through an ATM offering program can provide a number of benefits to public companies as compared to traditional methods of capital raising, particularly during periods of high market volatility like the current one, including:
  • the company has flexibility to control the timing of sales, amount of sales and minimum acceptable price;
  • the company can raise equity opportunistically, as-and-when-needed, and can precisely match the sources and uses of funds;
  • efficient sales management can mitigate volatility by selling more during periods of stock price strength and slowing/halting sales during periods of stock price weakness;
  • the incremental nature of sales means that the company stands to benefit from a rising stock price;3
  • instructions to the placement agent can be reassessed or revoked at any time, even intraday;
  • sales are typically discreet/anonymous over an ECN, or electronic communications network;
  • the placement agent provides continuous market feedback and can compare actual sales prices to VWAP over the same period;
  • overall cost of issuance is generally significantly less than that of a traditional underwritten offering;
  • program can be put in place relatively quickly (3-4 weeks), with no road-show or other sales efforts required; and
  • no lock-up is usually required from directors, officers or significant shareholders."

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