BEST PRACTICES FOR PRIVATE PLACEMENT MEMORANDUMS

28 October, 2014

As a former institutional salesman at an investment bank, I recognize the complexity and risks associated with preparing and distributing a Private Placement Memorandum (PPM).

Best Practices for Private Placement MemorandumsThe Private Placement Memorandum is a stand-alone document, in that it contains all the information an investor needs to make an investment decision. As such, PPMs must be drafted very carefully to ensure that they are comprehensive and do not omit any information that a reasonable person would consider relevant in making an investment decision. It’s also crucial that they not contain any information that could be considered misleading.

What Should a PPM Include?

Given that a PPM is intended to provide disclosure of all of the material facts relating to the security being offered, a PPM should generally include, at a minimum, the following topics:

  • Background Information on the General Partner and/or Investment Manager
  • Investment Objective, Strategy and Limitations (if any)
  • Management Fees, Incentive Compensation and Other Fees and Expenses
  • Investment, Withdrawal and Transfer Procedures and Limitations
  • Risk Factors
  • Conflicts of Interest Tax Issues
  • ERISA Issues

Business Challenge

Once an investment bank has retained a company to offer a private placement of shares, the means by which documents are distributed, both internally and to clients, must be tightly controlled in order to rigorously adhere to the rules laid out under Regulation D of the Securities Act of 1933. Regulation D states that there can be no general solicitation or advertisement of securities in conjunction with a private placement memorandum. Because Regulation D requires that only accredited prospective investors be allowed access to the PPM, document security becomes paramount.

Risks

In the past, PPMs could be highly volatile documents. Distributing the documents by unsecure channels, like email, allowed the possibility of documents being forwarded to non-qualified parties and risked creating unnecessary confusion if an outdated version of the PPM was distributed. An emailed document is always susceptible to ending up in the hands of non-accredited parties, unvetted investors, and non-relevant members of the team. Any of these scenarios can result in SEC interaction and the possible failure of the deal.

Solution

Orchestrating a successful private placement requires both transparency and confidentiality. Today’s modern virtual data room provides investors with secure access to the Private Placement Memorandum and supporting documents, enables strict control and visibility into who has received the PPM, and generates a full audit trail of document activity to ensure compliance.

ShareVault offers a centralized, tightly controlled, secure, and customizable solution for safely distributing PPMs, which meets the security requirements of Regulation D and offers considerable time and cost savings over traditional methods of PPM distribution. And, because ShareVault is accessible on a 24/7 basis, it has the benefit of attracting a larger number of investors, providing enhanced and timely information, and significantly shortening transaction times.

ShareVault makes the process simple:

  1. Upload Documents - Quickly create a custom-branded site and import documents using our simple drag-and-drop feature.
  2. Set User Permissions - Define user roles and easily control what different users can and cannot access.
  3. Apply Document Security - Define what users can and cannot do with documents, including the ability to print, save or block screenshots. Additional security includes the ability to apply dynamic watermarks, restrict access by IP address and computer, and remotely “shred” documents, even after they’ve been downloaded.
  4. Facilitate Q&A - Our Q&A module makes it easy to field and route questions from investors in a timely manner.
  5. Maintain Compliance - ShareVault’s powerful and dynamic reporting features provide a complete audit trail—a critical tool for allowing organizations to monitor when users access sensitive documents, who accessed them, and what type of action they took with that documentation, even recording the IP address of the user.

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About the Author

David Mosley is Director of Sales at ShareVault, where he is responsible for driving revenue within the financial services vertical and penetrating and positioning ShareVault in new markets. David is passionate about always inspiring his team to be at their best while maintaining a constant focus on driving the success of the business.

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