NEW YORK — A company that specializes in the sale of restricted securities and other illiquid positions has formed a group to help owners of minority stakes in small to midsize companies sell their shares in private transactions.
Restricted Stock Partners, a New York-based company that works with large clients that hold such securities, created the Minority Stock Sales Group, which looks to address the challenge of selling minority stakes in a company under Securities and Exchange Commission Rule 144. This can be done each quarter.
Rule 144 requires that clients hold securities for a year and sell up to 1% of the outstanding stock or the average weekly trading volume over a four-week period. Rule 144A prohibits qualified institutional buyers from selling securitiess listed on an exchange; Rule 144 prohibits unsolicited securities purchases through an intermediary or exchange.
The group will focus particularly on insiders and other affiliates who own 5% or more of a company’s shares and want to shorten the holding period during which they can hold public placements in private-equity positions. The group manages the selling process from the pre-sale due diligence through the settlement, with clients that include investment banks, issuers, hedge funds, mutual funds, private-equity and
venture capital firms, money managers and affluent individuals.
The group identifies potential buyers’ investment preferences and introduces to them only those opportunities in which they are interested. Restricted Stock Partners formed the group amid calls from holders of larger businesses that a network of buyers interested in obtaining larger positions be created, said Scott B. Passet, vice president of special situations at the company.
“Most positions are usually held by affiliates for 12 months, and buyers are more long term and strategic in nature,” he said.
The formation of the group by the subsidiary of Green Drake Capital Corp. is a natural progression of what the trading desk does on a daily basis, Mr. Passet said, adding that the group is updating its database and is identifying the buyers’ investment preferences.
“Many buyers are pretty specific in what they invest in,” he said.
Two securities lawyers said that the new group meets industry demands. “RSP is ahead of the curve,” said Steven E. Siesser, chairman of the specialty-finance group at Lowenstein Sandler PC, a Roseland, N.J., law firm.
He noted that a marketplace for 144A tradable securities will be an important one, because the SEC is “unreasonably constraining the private-placement market.”
“You have a lot of qualified institutional buyers with additional money to invest, and the new platform will be like an eBay for 144A securities,”Mr. Siesser said. “It opens up an opportunity for a lot of foreign issuers to have access to U.S. capital markets without having to seek registration with the SEC.”
“The role of hedge funds and the uncertainty in the current public marketplace may make this an attractive option for insiders seeking liquidity,” said Bonnie Barsamian, New York-based partner and co-head of the corporate-finance practice at Dechert LLP of Philadelphia.
The group also performs the back-office functions needed in minority-stake sales and can assist with any public filings that could be required by the SEC.
The group’s sellers can access Restricted Stock Partners’ Restricted Securities Trading Network, which has more than 300 members, each with at least $200 billion available for investment.
