Nasdaq Scrutiny Increases for Follow-on Offerings

For newly public companies considering follow-on stock offerings, life ain’t what it used to be. For the past three months, Nasdaq has been scrutinizing such offerings.

Regulators have been attempting to make sure any company doing a follow-on offering markets its stock to both retail and institutional investors. That is particularly challenging for small, newly public companies that want to sell more than 20% of their shares. Without an OK from Nasdaq, they must hold a vote to get shareholder approval, a process that can be expensive and time consuming. It has prompted some companies to rethink or cut the size of follow-on deals.

“This is a very important issue for small companies trying to raise money,” says Laura Berezin, an attorney at Cooley LLP in Palo Alto, Calif.

On the bright side, Nasdaq has indicated it will be more lenient when an underwriter can argue a deal is unsuitable for retail investors.

Still, the increased scrutiny will continue as Nasdaq examines these underwriter claims. “It’s an uncertainty and a fluidity in every transaction,” says Berezin.