David Buzkin on Microcaps and the IPOs

David Bukzin is the national partner -in charge of Marcum’s SEC practice with a focus on securities underwritings for emerging growth companies he organized the Marcum Microcap conference in 2010 to facilitate development for  smaller size public companies under $500 market caps. He discusses the origins and mission of the conference and the outlook on public financings in the coming year. Continue reading to review the full transcript. .

Brett Johnson: Welcome. This is Brett Johnson at OneMedRadio in New York. Today we are with David Bukzin. He is the national partner-in-charge of Marcum’s SEC practice. He’s also running the Marcum Microcap Conference, the sixth annual of which is June 15th-16th at the Grand Hyatt in New York. Thanks for joining us today, David.

David Buzkin: Pleasure to be here, Brett.

BJ: Tell us, how did this conference get started, where did this thing come from?

DB: Great, my pleasure. We started the Marcum Microcap Conference back in 2012 because we recognized that smaller entrepreneurial public companies under $500 million dollars in market cap needed another place, another venue, in which they could tell their stories and network with the investment community.

There are many investment banking conferences where there’s one investment bank. But as Marcum, with no allegiances to any investment bank, we could invite multiple investment bankers and investors to meet with these companies. So we created a forum where an entrepreneurial public company or a company looking to become public in the near future could meet with five, ten, fifteen investment banking firms, as well as investors and other service providers to the microcap community.  

BJ: Sounds like you fit a need there, particularly for the smaller investment banks that may not be doing their own conferences. You’ve given them a conference where the companies can meet a variety of resources.

DB: Absolutely. As a matter of fact, around the time we started the conference, many smaller investment banks, because they had been suffering since the recession, had shut down their own conferences. We really were filling a need at that time, and we couldn’t predict what the response would be, so we budgeted for thirty to forty companies and three to four hundred attendees. And lo and behold, at the first conference we had sixty companies present and almost eight hundred attendees. We had a full day of expert panels, and we knew we had tapped into a need and birthed something meaningful to the microcap community. And here we are preparing to have our sixth conference. Last year’s conference was two full days. We had over 2,000 attendees. We had the likes of Harvey Pitt, former chairman of the SEC, and Newt Gingrich, former speaker of the House, as our keynotes and over 160 presenting companies. It was a wonderful event.

BJ: Can you tell us a little more about the composition of the presenting companies as well as the investors. What’s the breakdown of the companies that present?

DB: Also a good question. The make-up of the companies is probably nearly identical to the make-up of the public company community that it represents. So probably forty percent of the companies are in life sciences, med-tech, pharmaceuticals, or some derivation of that. Twenty percent of the companies are in some form of technology, software, etc., and thirty percent are split between industrials, financial services, and energy and natural resources. I would say, if you took every company under $500 million dollars’ market cap and you put them into one of those buckets, you’d probably capture almost the entire universe of public companies.

BJ: How about the attendees? Can you talk about who comes to the conference?

DB: Of course, you have the management teams from presenting companies, service providers to the microcap community, investment bankers from the smallest firms to the largest, and then probably four to five hundred funds, family offices, high net worth investors, and other people who not only invest directly into a company but people who are out there buying on the open market.

BJ: How about the format of the conference? How is it set up?

DB: The format of the conference every year evolves a little, based upon feedback that we get from the participants. Generally speaking, we’ll have two days of expert panels based upon whatever hot topics we see. We’ll have a gala event the first night where all participants join. We’ll have keynote speakers. This year there will be a lunch keynote on day one and breakfast keynote on day two. We’ll have one-on-one meetings — I believe there were over a thousand conducted at last year’s conference.

BJ: That sounds very exciting. As the conference has evolved over the years, do you have a sense since you started this about how the environment for microcap companies evolved and changed?

DB: I always think that microcap companies many times suffer from lack of capital and liquidity. They are the first to feel weakness and the last to feel strength in the markets. 2015 was a very strong year, but as the election approached and people were nervous within the business community, there was trepidation about how things would evolve. The conference market as a whole was a little on the weaker side in 2016.

But now with a new president in place who is making his mark and whose commitment is about “jobs, jobs, jobs” and who is pro-business, you’ve seen strength in the market as a whole, and hopefully it’s going to trickle down to the entrepreneurial company. We’re really expecting to see a lot of strength develop in the microcap sector and benefit the companies that would like access to these capital markets.

BJ: What’s your sense of the capital markets and the investment community, be they institutional or individual investors? I’ve been hearing that there’s been some capital outflows from the microcap space. Have you been seeing that or do you have a sense of a broader overview in terms of the investor perspective in this area?

DB: I think things started to get a little tight at the end of 2015, and then in the fourth quarter 2015 what I believe happened is we went into what I call the momentum phase, where stuff isn’t really happening but people are lining up anyway with the hope that things are going to turn around quickly. They didn’t really, such that the IPO market in 2016 was the slowest in maybe a decade. 

I think that we are seeing a little thawing early in 2017.  I don’t think much has manifested yet. I haven’t had the opportunity to compare statistics from this January to last January. But I can tell you in the beginning of 2016 we were in that momentum phase, which died out as the election approached with the comeback in the markets. There is a lot of hope and a lot of companies lining up that thinking that 2017 will be a rebound in the capital markets, but your guess is as good as mine.

BJ: Can you talk about what Marcum does? I know you do work in the IPO area? What makes Marcum unique?

DB: Well Marcum is one of the fifteen largest accounting and consulting firms in the United States. We have just over thirty offices in six regions domestically and then China, Ireland and the Cayman Islands. We have a whole host of services and industry lines which we support and provide accounting and tax and other advisory services to. We have one of the largest SEC auditing practices in the US, which is one of the areas I helped develop for the firm and which we’re very proud of.

We are very much and have always been a leader in supporting young companies and emerging growth companies. As such we have been very active in the IPO space. Other than the big four (accounting firms), in the last two years we’ve been on the cover of more IPOs than any other auditing firm in the US. We’ve been very active in the new Reg A+ area, supporting our clients as an auditor and we’ve had probably close to a dozen companies get qualified (to go public using Reg A+). As well, we’re always working with young companies, emerging growth companies that are doing other alternative public offerings whether we’re doing reverse mergers, Form 10 transactions, or self-filings.

BJ: Interesting, I was about to ask about the Jobs Act and the Reg A+, and crowdfunding. What’s your outlook on Reg A+? It appears to have gotten off to a slower start than many had hoped. Do you think it’s going to be an important structure going forward and what’s your outlook?

DB: Many forward-thinking early adopters in anything will end up falling flat on their faces, but I’m hopeful about the Reg A+ There are a number of aspects to it that solve some of the challenges to the normal IPO process, which is why they call it  the mini IPO. I think there’s continued evolution that needs to happen with the structure, whether that’s in the testing the waters phase and converting those people who show interest in investing into actual investors. Also, finding those right companies that should be taking part in it as well as building liquidity for the companies that are successful in raising capital so that there is an active trading market. Lastly, supporting many of those companies into going from over the counter to getting listed on a national stock exchange. So I think there’s a lot of evolving that needs to still happen.

BJ: You mentioned earlier that you guys have built a large SEC auditing practice. Can you tell us a little bit about what you do in that SEC auditing practice?

DB: We are the PCAOB, independent registered auditors for public companies. We sign off on the audit for the 10K, we review their 10 Q’s, we issue comfort letters in connection with capital raises. We are the watch dogs for the various stakeholders in public companies.

BJ: Has that become more difficult over the years and increasingly highly regulated, or has it pretty much remained static? Has that changed much or is that fairly consistent?

DB: We get inspected annually by the PCAOB, (public company accounting oversight bureau), and as they grew up — and they have been around since Sarbanes-Oxley was instituted — they have raised the bar in inspecting audit forms and making sure that audit quality is at a very high bar. So it has created additional challenges for public companies who need a PCAOB audit because the procedures that we have to do and hoops that we have to make a company jump through to get a Q completed or an audit done have certainly gotten more intense over the years. When I grew up in auditing, it was in many respects about what the number was. Today, it’s not only about what the number is but how did it get there and why is it there. It certainly has gotten a little bit more intense over the years.

BJ: Finally, can you give us your vision for the conference? What is your hope for what this conference will evolve into as you look down the road?

DB: I hope that it becomes a staple of the annual conference calendar for companies with a $500 million market cap, and maybe even more someday. I want it to become considered as kind of a symposium for industry experts and entrepreneurial companies. I want it to be a meeting point for the entrepreneurial Wall Street community but where there are other elements like top-notch keynote speakers and other features that we roll out every year. I can’t wait. This year it will be the sixth, and I’m looking forward to continuing to grow it as the years progress. 

BJ: Terrific. Having been in the past I’ve seen the great progress you’ve made with the conferences, so I congratulate you on that. Thank you for joining us today.