Investor Risk: Almost 60% of IPOS Fail to Use GAAP



GAAP – an acronym for generally accepted accounting principles – is vital in financial reporting. But nearly 60 percent of companies fail to provide financials fully based on GAAP, according to a study by PwC US.

Entitled, How non-GAAP Measures Can Impact Your IPO, the report analyzes 400 initial public offerings (IPOs) from 2011 to 2013. The study shows at least one GAAP measure wasn’t included in 65 percent of the IPOs.

That one important non-GAAP (NGM) measure was EBITDA, the acronym for “estimated before interest, income taxes, depreciation and amortization” measures.

profits-618373_1280This is risky for investors who should be considering good financial reporting.

Good financial reporting enables investors to make astute financial decisions. Investors need to be able to assess the cash, timing and certainty of a company’s revenue.

“Management teams, investors, regulators and ratings agencies are keenly focused on NGMs and how they are being used by new equity issuers,” said Neil Dhar PwC’s U.S. Capital Markets leader in a press release.

“As companies prepare for an IPO, among the many choices they must make is how to utilize NGMs in their filings and in their communications with potential investors,” he said.

“NGMs provide meaningful insight into a company’s liquidity, cash flow, and operating performance and using the right NGMs can help new issuers highlight key facts and circumstances to positively position themselves to the investment community,” Mr. Dhar added.

The study’s key findings:

— Adjusted EBITDA NGMs appeared in 46 percent of reviewed filings.

— More than 70 percent included an adjustment for stock, share or other equity based compensation.

— Other common EBITDA adjustments related to impairment (33 percent), acquisition (20 percent), and restructuring & reorganization impacts (15 percent).

— Eighty percent of the filings included at least one unique adjustment, which ranged from management fees to accretion charges, to income or losses from discontinued operations.

Adjustments to EBITDA can be determined at the discretion of the company. It can vary significantly from organization to organization, impacting comparability between companies and industries.

The PwC report also showed how some industries have developed other common NGMs in addition to or as a replacement for Adjusted EBITDA, That includes asset management, banking and capital markets and in entertainment, media and communications.

After Adjusted EBITDA, other common NGMs in the financial statements analyzed included EBITDA (19 percent), adjusted net income (nine percent), free cash flow (four percent) and adjusted gross profits (four percent).

“Companies should be ready to enter the IPO markets while the window is open and having their financial reporting in order from the start is a key factor in the process,” warned Mike Gould, PwC’s U.S. Public Offerings leader.

“While NGMs are a key tool for companies planning to enter the public market, it is a complex process that must be thought through objectively to avoid potential missteps, unanticipated costs and delays in their offerings,” he added.

From the Coach’s Corner, here’s related information on capital:

How Twitter Levels the Playing Field for Small Cap Companies – Good news for venture capitalists and entrepreneurs who are known to kvetch that that their companies fall below the radar screen of Wall Street analysts and the media. It’s widely known that mainstream media coverage seems to favor large companies over small ones. But an academic study shows that Twitter can help such small cap companies gain market liquidity.

How to Attract an Angel Investor – Now that a UNH study indicates early stage financing by angel investors is more advantageous than venture capital money, what now? An angel investor offers seven tips.

What No One Tells You about Raising Investment Capital – Tepid economy or not, investment capital is indeed available. That’s true during all economic cycles, according to leading consultant Joey Tamer.

What Should You Divulge When Asking for Investment Capital? – If your startup is the next big thing, but you want venture capital, you can start smiling. Yes, financing has been difficult to obtain in recent years. But entrepreneurs wanting venture capital have reasons for at least a small celebration – the money is starting to flow again after the Great Recession took its toll.

In Retrospect, Was GM’s IPO Practical or Political? – A leading expert on initial public offerings, Francis Gaskins, is not wowed by General Motors’ IPO. That’s despite GM being profitable in 2010.

I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.

 -Warren Buffett


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





IPO Guru: Why the Frantic IPO Pace Heading into 2012


Editor’s Note: My friend and colleague, IPO guru Francis Gaskins, passed away February 22, 2016. He was widely quoted and interviewed by major news operations. The following article reflects his expert opinion on the flurry of initial public offerings in late 2011.


Dec. 14, 2011 –

Although 2011 has been a disappointing year for initial public offerings, several companies aim to go public this week making it the busiest IPO activity since 2007.

So what’s going on?

“There is a very large backlog of companies wanting to IPO and the November 4 Groupon IPO turned the light back on IPOs,” says expert IPO analyst Francis Gaskins. Google his name – he’s a widely quoted IPO guru online, on television and in newspapers.


“The IPO light was turned off by the market’s decline in August,” he explains.

You might recall the stock market took a nosedive over worries of the federal government’s debt. At this writing, Standard & Poor’s 500 increased by 8 percent in the last nine weeks.

Which companies stand to benefit?

“This week there are five energy-related IPOs, two social networking IPOs (Zynga & Jive Software), two industrial companies plus Michael Kors, which we like very much, and one IT company,” Mr. Gaskins explains.

In 2011 until now, $35 billion has been raised in 115 IPOs. That’s a decrease from 2010 — 154 IPOs netting an aggregate $39 billion.

Both years are considered to be subpar. Normally, you could expect 25 percent more dollars to be raised among about 250 IPOs.

“The IPO market is leaving 2011 with a decided bang,” he says.

So what about the New Year?

“As long as the averages don’t tank we’ll continue to have a healthy IPO market when it begins again sometime in January,” adds Mr. Gaskins.

“In the business world, the rearview mirror is always clearer than the windshield.”
-Warren Buffett


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Author Terry Corbell has written innumerable online business-enhancement articles, and is also a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Funding Options to Navigate This Marketplace Bedlam


Part one of two-part series: “Solutions for a Roller Coaster Marketplace”




Aug. 13, 2011 – 



OK, it’s been a wild ride, right? Uncertainties regarding Wall Street, actions by the Federal Reserve, and funding often set off alarm bells. But if you’re looking for capital, there are reasons to hope, according to leading consultant Joey Tamer.

Ms. Tamer acknowledges that the wildly gyrating stock market and withdrawals of initial public offerings are top-of-mind concerns. “…the change in IPO activity may be the most significant,” she writes in a blog post, “Will stock market chaos create venture capital downturn?

“Venture capitalists are excited by a predictable exit market, either strong M&A (mergers and acquisition) activity or several powerful IPOs coming in the near future,” she writes. “If they believe they must wait for these liquidity events, or cannot predict when these will be active, the VCs will become more conservative in their choices, and protect their portfolios.”

Ms. Tamer is imminently qualified to comment. As a trusted source on this business portal, she’s a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices.

Joey TamerJoey Tamer, www.joeytamer.com

Having experienced five downturns, she recalls the trends from the last two recessions – patterns, which could repeat now.

She says the patterns include:

  • Deals that were not completed at that time rarely were completed.
  • VCs took, justifiably, defensive measures to ensure that their existing portfolio companies had enough capital to move forward on their growth cycle.  The VCs allocated much of their existing Funds to those investments already secured.  This left much less for “venturing” into new risks. And the VC’s return on investment (ROI) on their portfolios was threatened, and that ROI is the basis of the VCs being able to raise their next Fund and so to survive.
  • VCs became more conservative in the risks they would take.  On my various VC panels in the tech industry (Digital Hollywood, CES, and others), they admitted (this was 2008 and early 2009) they were “broadening their early stage searches” to include those startups that had revenue and market traction.  This criteria became a standard, leaving seed and Series A capital more and more to angel investors and angel groups.
  • Deal terms became more aggressive against the entrepreneur, to protect the VCs from potential downside.
  • Years of limited capital drove entrepreneurs to bootstrap their companies (since there weren’t jobs for them anyway) and get their companies into a much safer stage once the capital began to flow again.

Ms. Tamer cautions “the cycles of boom and bust are coming too close together.”

Specifically, she warns:

  • After the downturn of 2000/2001, the VCs didn’t get truly active again until 2004.
  • The next bust was 2008, with investment beginning again in 2010, and more actively in 2011.
  • Three to four years of an active investing cycle is not enough time for entrepreneurs to recover from these downturns, especially if the uptick in investing lasts only 3 years going further.  This cycle stresses the VCs and their new Funds as well.
  • VCs are handling portfolios with an exit cycle of 6-8 years from funding.  Entrepreneurs may launch and get traction in 3 years after funding (which means 4-5 years after they begin the company), but they are rarely scaling until year 4 post-funding.
  • Notice the age of the potential IPOs — up to 8-10 years to build value and find a good IPO window (perhaps now closed again).

But as a knowledgeable veteran strategist, she knows fear leading to procrastination is unproductive for entrepreneurs.

I agree and often use two acronyms in illustrating the dangers of yielding to FEAR:

  • “Frantic effort to avoid responsibility”
  • “False evidence appearing real”

So, Ms. Tamer offers these strategies:

  • Keep building your companies, your technologies, your breakthroughs.  Who knows what will happen next week or next month?
  • Consider alternative forms of funding — private funding for an idea re-conceived for this new economic reality; strategic funding from a win/win bigger company that needs what you have; licensing and strategic revenue and no equity or debt funding at all;
  • Consider a different take on your product or service idea, or your target market sector, or your market timing, and create a company that builds wealth for you independent of the vagaries of the stock market and other people’s ideas about capital, risk and what is real. This is my favorite kind of company to build.

See 6 Values for Financial Protection for part 2 of this two-part series: “Solutions for a Roller Coaster Marketplace.”

From the Coach’s Corner, be sure to read Ms. Tamer’s opinions on other topics:

10 Characteristics of a Successful CEO — This is a 10-part series on CEO leadership by Joey Tamer, www.JoeyTamer.com. She is a consultant to experienced consultants in all fields to maximize their practices. She has also been a strategic consultant to entrepreneurs in technology and digital media.

What No One Tells You about Raising Investment Capital — Tepid economy or not, investment capital is indeed available. That’s true during all economic cycles, according to leading consultant Joey Tamer.

What Should You Divulge When Asking for Investment Capital? — For many startups, it makes sense to grow organically. But for others, the answer is to seek capital by making the right presentation to investors. Here’s how.

The 6 Values for Your Financial Protection — Debt is the catalyst of all financial woes, says esteemed associate Joey Tamer. Here are her six values to avoid financial traps.

8 Strategies to Consider Before Starting A Tech Business — Before you launch a tech business, here are eight salient strategies to remember.

“Do the thing we fear, and death of fear is certain.”
-Ralph Waldo Emerson­


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






In Retrospect, Was GM’s IPO Practical or Political?


Editor’s Note: My friend and colleague, IPO guru Francis Gaskins, passed away February 22, 2016. He was widely quoted and interviewed by major news operations. The following article reflects his expert opinion.


Updated March 15, 2014

A leading expert on initial public offerings, Francis Gaskins, was not wowed by General Motors’ IPO in 2010 – to say the least. That’s despite GM being profitable in the first two quarters of that year.

Widely respected, Mr. Gaskins published a site, which was called “Forbes Best IPO Site.”

GM’s Q2 sales of $33.2 billion led to a $1.3 billion profit. In filing the IPO, the company was anxious to return to Wall Street by shedding its nickname, “Government Motors.”

The government had a 60.8 percent stake in GM after giving the company a $50-billion bailout in 2009.

In addition to saving lucrative jobs, the United Auto Workers Union got a 17.5 percent ownership. But $2.1 billion in preferred stock was owned by the government and wasn’t included in the IPO.

In giving a thumbs down, his Twitter account featured a succinct tweet: “No rational reason to value GM’s IPO more than Ford. Implies big loss to taxpayers.”

Far from being a mere harsh critic, Mr. Gaskins is scholarly and one of the nicest people I know. He’s even artistic as a violinist — except he doesn’t fiddle around in an IPO analysis.

This was historically the largest group of financial institutions ever in a U.S. IPO. The banks included: Morgan Stanley, J.P. Morgan Chase, Bank of America Merrill Lynch, Citigroup, Goldman Sachs Groups, Barclays Capital, Credit Suisse Group, Deutsche Bank, RBC Capital Markets and UBS. Each provided as much as $500 million in credit.

Isn’t it ironic that big banks also received a bailout?

There are 5,000+ banks in the U.S. However, just 12 dominate with 69 percent of the industry’s assets. Therefore, it’s worth noting major banks are too big to fail, but not to break them up.

Why a bankruptcy?

My recollection is that GM got into trouble following its weak sales, high material costs, and too-high union wages and pension costs.

Many taxpayers and pundits criticized the government’s bailout of GM by calling it an administration payback to union supporters without enough consideration for taxpayers.

Questions abounded over GM management’s expertise and financial reporting, which were among the reasons Mr. Gaskins wasn’t confident about the IPO. “They don’t know what’s happening,” he said.

What about the IPO’s timing? On August 19, 2010 I wrote “it appears the government is pushing the deal in advance of the November election so politicians can escape more criticism of the unpopular bailout.”

In the same article, Mr. Gaskins said he’d tell the government: “I would say don’t do the IPO.”

My conclusion in 2010 was this: “Translation: If you are an investor, read the 500+ page IPO prospectus and do your due diligence. This IPO appears more political than practical.”

What did the bailout accomplish?

Since the bailout, there have been three unfortunate developments:

  1. On December 9, 2013, the federal government sold its GM holdings — at a $10-billion loss to taxpayers.
  2. Government Motors is again in the limelight over an accelerator-defect recall after reports of possibly 13 deaths and 2,000 injured over an 11-year period.
  3. Fingers of blame are now pointed at GM and the Obama Administration.

From an Investors Business Daily editorial, Another Government Coverup To Protect GM?, consider this excerpt:

Corruption: Are auto recalls nothing more than political  tools now? The Obama administration’s failure to act on reports of GM  accelerator defects as the bodies piled up suggests that safety took a back seat  to politics.

Next to ObamaCare, there isn’t any accomplishment President Obama is prouder  of than his $800 million automobile industry bailout. “GM is back,” touted the  president. “Osama bin Laden is dead and General Motors is alive,” crowed Vice  President Joe Biden during their 2012 re-election campaign.

Not so fast. Turns out the Obama administration has been sitting on evidence  that some of these widely touted Government Motors vehicles are death traps due  to faulty accelerators that slow or stop without warning, according to a report  by Liz Peek of the Fiscal Times.

The problem has left at least 13 people dead and as many as 2,000 injured  since 2003, according to reports. The House Energy and Commerce Committee has  launched a probe to get to the bottom of it.

Hmm. Turns out Mr. Gaskins was right.

From the Coach’s Corner, editor’s picks:

How Will Journalists Act After Obama’s Supreme Slap at the 1st Amendment? — A controversial study of the news media by the Federal Communications Commission has been put on hold. Many Republican lawmakers, media groups — and this business portal — complained that the study was a disingenuous attempt to influence journalists in their news coverage.

Q&A with Dr. Ben Carson – The Full Meal Deal with Solutions — Naturally, Dr. Ben Carson is known as a uniquely soft-spoken retired neurosurgeon. His voluminous accomplishments include his pioneering in the separation of conjoined twins at the head. But, of course, there’s more. A lot more. With his gentle, low-key demeanor, he’s also known for his powerful insights on the issues facing the U.S. and the world.

Memorial Day: What Would Abraham Lincoln Say Today? — Memorial Day is a holiday to remember the armed forces’ men and women and why they died to protect our freedoms. What Honest Abe would say today.   It’s been well documented that Abraham Lincoln is the political idol of President Barack Obama.

If General Motors can’t survive and run their business like a business, let them go under.”

-James Wood


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management servicesFor a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.






Seattle business consultant Terry Corbell provides high-performance management services and strategies.