Here’s something you don’t read every day in an S-1…

“Institutional Venture Partners IV, L.P. is compelling us to register the shares of Class A common stock offered hereby by exercising demand registration rights. While we intend to comply with our obligations under the Master Rights Agreement, our board of directors and executive officers believe that filing the registration statement of which this prospectus is a part and effecting an initial public offering of our Class A common stock are not in the best interests of Applied.”

Huh? I guess you can lead a horse to water, but you can’t make it drink.

This is buried in the Risk Factors section of an S-1 filed by medical device company Applied Medical Corporation, whose largest outside shareholder is Institutional Venture Partners. It seems that IVP is exercising its “demand rights”, where it can contractually obligate AMC to register its shares for a later sale to the general public. The notable thing here, of course, is that AMC, its board, and its management seemingly don’t want to go public…and that raises some very interesting questions. How do you do a roadshow with a company that publicly says, “But seriously, folks, we don’t think this a good idea.”

To be sure, you rarely (if ever?) see an investor force the demand registration issue so visibly against the will of the company. IVP says they and their institutional investors simply need to realize on this investment — quite a damning indictment of the pressure institutional investors are currently under to get liquid. But there’s certainly a lot more to it than that. How the company and its investor got to this point is a story within itself with, of course, all the assorted and sundry lawsuits too.

What I find most notable about this story from a corporate development perspective, however, is AMC’s overt aversion to going/being public. The hassles and costs of being public are well documented – a 2012 survey by E&Y shows that it adds over $2.5 million to the average company’s cost structure. AMC’s board and management clearly think that there’s more (ostensibly longer term) value in remaining private and, as implied by their CEO, continuing to groom the company for sale to a strategic buyer. Ironically, they’re now made to say this publicly.

In these types of situations, I normally say to understand the real story all you have to do is follow the money. Here, exceptionally, there are two diametrically opposed views on the best path to ROI, and the story is still evolving. I’ve never seen a rider-less horse be made to drink, but you never know…

Posted by: Mory Watkins