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REGULATORY REPORTING____________________________________________________________

The Art of the IPO: Lessons from Facebook, LinkedIn, Groupon and Zillow

Essential BriefingsTEN YEAR REVIEW OF AUDIT FEE AND NON-AUDIT FEE TRENDS

1 | SingerLewak October 2012

Contents

______________________________________________________________________________________________________________________________________________________

ESSENTIAL BRIEFINGS2 TEN YE AR RE V IE W OF AUDIT FEE AND NON-AUDIT

FEE TRENDSThe Audit Analytics auditor fee database contains all fee data disclosed by SEC registrants in electronic filings since January 1, 2001. The data has been extracted primarily from the following form types: DEF 14A, DEF 14C, DEFM 14A, PRE 14A, 10-K, 10KSB, 20-F, 40-F and N-CSRs.

______________________________________________________________________________________________________________________________________________________

REGULATORY REPORTING4 THE ART OF THE IPO: LESSONS FROM FACEBOOK , L INKEDIN,

GROUPON AND Z ILLOW Summer was not kind to Facebook. It was harsher still to Groupon and Zynga. All three companies are new to the public markets. If you were to look to their debuts only, you’d be forgiven for concluding that going public is a raw deal.

October 2012

October 2012 SingerLewak | 2

E S S E N T I A L B R I E F I N G S

TEN YEAR REVIEW OF AUDIT FEE AND NON-AUDIT FEE TRENDS

DATABASE OVERVIEW:

The Audit Analytics auditor fee database contains all fee data disclosed by SEC registrants in electronic filings since January 1, 2001. The data has been extract-ed primarily from the following form types: DEF 14A, DEF 14C, DEFM 14A, PRE 14A, 10-K, 10KSB, 20-F, 40-F and N-CSRs. In cases where two disclosures filed by the same registrant within the same year provide inconsistent fee information (i.e., the PRE 14A discloses different numbers than the DEF 14A), the DEF 14A is given pre- cedence over other forms. The definitions of the audit fee categories con-tained in the database are provid-ed at the end of the report. For further information regarding the auditor fee categories, see SEC Final Rule 33-8183 (corrected version), with an effective date of May 6, 2003, and its predecessor rule, SEC Final Rule 33-7919.

RESEARCH POPULAT ION:

This audit fee and non-audit fee analysis concentrates on those fees paid and disclosed by ac-celerated filers (including large).

The initial population comprised all accelerated filers as identified on June 20, 2012.1 Audit Analyt-ics reviewed this initial popula-tion of 3,826 filers to determine which companies disclosed audi-tor fees for each and every year from 2002 to 2011, inclusive. This historical data requirement distilled the population to a total of 2,507 filers.

EXECUTIVE SUMMARY – AUDIT FEE AND NON-AUDIT FEE TRENDS FROM 2002 TO 2011

1. In 2002, non-audit fees were 51% of the total fees paid by accelerated filers, but after three years of steady de- cline non-au-dit fees appear to have leveled off at about 20% of total fees.

During calendar year 2002, non-audit fees represented 50.90% of the total fees paid to independent auditors by the 2,507 accelerated filers that comprise the research population of this analysis. For the next three years, non- audit fees declined as a per- centage of total fees reaching a low of 19.35% in 2006. At this point, the percentage lev- eled off at about 20% for the following five

Database Overview:

The Audit Analytics auditor fee database contains all fee data disclosed by SEC registrants in electronic filings since January 1, 2001. The data has been extracted primarily from the following form types: DEF 14A, DEF 14C, DEFM 14A, PRE 14A, 10-K, 10KSB, 20-F, 40-F and N-CSRs. In cases where two disclosures filed by the same registrant within the same year provide inconsistent fee information (i.e., the PRE 14A discloses different numbers than the DEF 14A), the DEF 14A is given pre-cedence over other forms. The definitions of the audit fee categories contained in the database are provided at the end of the report. For further information regarding the auditor fee categories, see SEC Final Rule 33-8183 (corrected version), with an effective date of May 6, 2003, and its predecessor rule, SEC Final Rule 33-7919.

Research Population:

This audit fee and non-audit fee analysis concentrates on those fees paid and disclosed by accelerated filers (including large). The initial population comprised all accelerated filers as identified on June 20, 2012.1 Audit Analytics reviewed this initial population of 3,826 filers to determine which companies disclosed auditor fees for each and every year from 2002 to 2011, inclusive. This historical data requirement distilled the population to a total of 2,507 filers.

Executive Summary – Audit Fee and Non-Audit Fee Trends from 2002 to 2011

1. In 2002, non-audit fees were 51% of the total fees paid by accelerated filers, but after three years of steady de-cline non-audit fees appear to have leveled off at about 20% of total fees.

During calendar year 2002, non-audit fees represented 50.90% of the total fees paid to independent auditors by the 2,507 accelerated filers that comprise the research population of this analysis. For the next three years, non-audit fees declined as a per-centage of total fees reaching a low of 19.35% in 2006. At this point, the percentage lev-eled off at about 20% for the following five years. In 2011, the non-audit fees equaled about 20.67% of total fees. (See graph above and the table on Page 7: Audit Fees and Non-Audit Fees Over Revenue).

Audit Fees & Non-Audit Feesas a Percentage of Total Fees

73.33%

26.67%

Audit Fees79.33%79.44%81.20%80.55%79.77%80.65%79.09%

58.76%49.10%

20.67%Non-Audit Fees

20.56%18.80%19.45%20.23%19.35%20.91%

41.24%50.90%

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Audit Fees Non-Audit Fees

1

9 Main Street 2F | Sutton, MA 01590 | 508.476.7007

Ten Year Review of Audit Fee and Non-Audit Fee Trends(Experienced by Accelerated and Large Accelerated Filers)

1 An accelerated filer is a company whose Public Float (as opposed to Market Capitalization) exceeds $75 million as of the last day of their second quarter. Once a registrant becomes an accelerated filer, it will not lose this status unless its float drops below $50 million. (See Rule 12b-2 of the Securities Exchange Act of 1934.) In this research a large accelerated filer is included in the accelerated filer population. Notwithstanding the defini-tion, the Audit Analytics database maintains the filing status as disclosed by the registrant to the SEC in its last periodic report.

Database Overview:

The Audit Analytics auditor fee database contains all fee data disclosed by SEC registrants in electronic filings since January 1, 2001. The data has been extracted primarily from the following form types: DEF 14A, DEF 14C, DEFM 14A, PRE 14A, 10-K, 10KSB, 20-F, 40-F and N-CSRs. In cases where two disclosures filed by the same registrant within the same year provide inconsistent fee information (i.e., the PRE 14A discloses different numbers than the DEF 14A), the DEF 14A is given pre-cedence over other forms. The definitions of the audit fee categories contained in the database are provided at the end of the report. For further information regarding the auditor fee categories, see SEC Final Rule 33-8183 (corrected version), with an effective date of May 6, 2003, and its predecessor rule, SEC Final Rule 33-7919.

Research Population:

This audit fee and non-audit fee analysis concentrates on those fees paid and disclosed by accelerated filers (including large). The initial population comprised all accelerated filers as identified on June 20, 2012.1 Audit Analytics reviewed this initial population of 3,826 filers to determine which companies disclosed auditor fees for each and every year from 2002 to 2011, inclusive. This historical data requirement distilled the population to a total of 2,507 filers.

Executive Summary – Audit Fee and Non-Audit Fee Trends from 2002 to 2011

1. In 2002, non-audit fees were 51% of the total fees paid by accelerated filers, but after three years of steady de-cline non-audit fees appear to have leveled off at about 20% of total fees.

During calendar year 2002, non-audit fees represented 50.90% of the total fees paid to independent auditors by the 2,507 accelerated filers that comprise the research population of this analysis. For the next three years, non-audit fees declined as a per-centage of total fees reaching a low of 19.35% in 2006. At this point, the percentage lev-eled off at about 20% for the following five years. In 2011, the non-audit fees equaled about 20.67% of total fees. (See graph above and the table on Page 7: Audit Fees and Non-Audit Fees Over Revenue).

Audit Fees & Non-Audit Feesas a Percentage of Total Fees

73.33%

26.67%

Audit Fees79.33%79.44%81.20%80.55%79.77%80.65%79.09%

58.76%49.10%

20.67%Non-Audit Fees

20.56%18.80%19.45%20.23%19.35%20.91%

41.24%50.90%

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Audit Fees Non-Audit Fees

1

9 Main Street 2F | Sutton, MA 01590 | 508.476.7007

Ten Year Review of Audit Fee and Non-Audit Fee Trends(Experienced by Accelerated and Large Accelerated Filers)

1 An accelerated filer is a company whose Public Float (as opposed to Market Capitalization) exceeds $75 million as of the last day of their second quarter. Once a registrant becomes an accelerated filer, it will not lose this status unless its float drops below $50 million. (See Rule 12b-2 of the Securities Exchange Act of 1934.) In this research a large accelerated filer is included in the accelerated filer population. Notwithstanding the defini-tion, the Audit Analytics database maintains the filing status as disclosed by the registrant to the SEC in its last periodic report.

FOR THE FULL REPORT, CONTACT DAVID FALCUCCI AT AUDIT ANALYTICS

(508)476-7007 x249 DFALCUCCI@IVESINC.COM

3 | SingerLewak October 2012

years. In 2011, the non-audit fees equaled about 20.67% of total fees. (See graph above and the table on Page 7: Audit Fees and Non-Audit Fees Over Revenue).

2. During the ten years under review, accelerated filers paid the lowest amount of non-audit fees as a percentage of revenue during 2011.

In order to adjust for inflation and cor- porate growth from year to year, Audit Analytics calcu-lated the total non-audit fees paid by the population of accelerat- ed filers and divided the fee amount by the total revenue of the same registrants. The results of this analysis are shown in the graph on the right by displaying the average amount of non-audit fees paid per $1 million in revenue. In 2002, this figure was $383. (See graph on right.) Since 2002, this figure declined for six years in a row to an amount of $129

for every million dollars in revenue in 2008.2 In 2009, the population ex- perienced a slight increase and paid about $134 for every million dollars in revenue. This increase, however, was due to a decrease in revenue. A review of the total non-audit fees paid by the research population showed that it dropped from $2.0 billion in 2008 to $1.8 billion in 2009. (See table on Page 8: Non-Audit Fees Over Revenue, Percentage Change from Year to Year). In 2010, the total non-audit fees paid increased, but not

to the same degree as the rev-enue. As a result, the non-audit fees paid per $1 million of rev-enue dropped to $131. This figure dropped again in 2011 to the lowest value calculated for the ten years under review: $121 of non-audit fees for every million dollars in revenue.

The second graph above pro-vides the percentage of change from one year to the next of the numbers displayed in the prior graph. This graph shows that the dramatic cuts of over 20% experienced in calendar year 2003, 2004, and 2005 could not

continue indefinitely. Neverthe-less, notable declines continued for three years thereafter: 11.99% in 2006; 1.85% in 2007; and 5.68% in 2008. Calendar year 2009 experienced an increase of 4.01%, but as explained above, this increase was due to a drop in revenue and not an increase in fees. With a rebound in revenues, 2010 experienced a 2.22% de-cline followed by a 7.16% decline in 2011.

2. During the ten years under review, accelerated filers paid the lowest amount of non-audit fees as a percentage of revenue during 2011.

In order to adjust for inflation and cor-porate growth from year to year, Audit Analytics calculated the total non-audit fees paid by the population of accelerat-ed filers and divided the fee amount by the total revenue of the same registrants. The results of this analysis are shown in the graph on the right by displaying the average amount of non-audit fees paid per $1 million in revenue. In 2002, this figure was $383. (See graph on right.) Since 2002, this figure declined for six years in a row to an amount of $129 for every million dollars in revenue in 2008.2 In 2009, the population ex-perienced a slight increase and paid about $134 for every million dollars in revenue. This increase, however, was due to a decrease in revenue. A review of the total non-audit fees paid by the research population showed that it dropped from $2.0 billion in 2008 to $1.8 billion in 2009. (See table on Page 8: Non-Audit Fees Over Revenue, Percentage Change from Year to Year). In 2010, the total non-audit fees paid increased, but not to the same degree as the revenue. As a result, the non-audit fees paid per $1 million of revenue dropped to $131. This figure dropped again in 2011 to the lowest value calculated for the ten years under review: $121 of non-audit fees for every million dollars in revenue.

The second graph above provides the percentage of change from one year to the next of the numbers displayed in the prior graph. This graph shows that the dramatic cuts of over 20% experienced in calendar year 2003, 2004, and 2005 could not continue indefinitely. Nevertheless, notable declines continued for three years thereafter: 11.99% in 2006; 1.85% in 2007; and 5.68% in 2008. Calendar year 2009 experienced an increase of 4.01%, but as explained above, this increase was due to a drop in revenue and not an increase in fees. With a rebound in revenues, 2010 experienced a 2.22% decline followed by a 7.16% decline in 2011.

Non-Audit Fees Over Revenue Percentage Change from Year to Year

-25.88% -23.68%-27.22%

-11.99%

-1.85%

-5.68%

4.01%

-2.22%

-7.16%

-30.00%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Non-Audit Fees (US $) Per Million Dollars in Revenue

383

284

217

158 139 136 129 134 131121

0

50

100

150

200

250

300

350

400

450

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

2

9 Main Street 2F | Sutton, MA 01590 | 508.476.7007

2 To some extent, the drop in non-audit fees may be attributable to Auditor Independence Rules adopted by the SEC in 2001 (see SEC Release No. 33-7919, http://www.sec.gov/rules/final/33-7919.htm) and strengthened in 2003 in response to Section 208(a) of the Sarbanes-Oxley Act (see SEC Release No. 33-8183, http://www.sec.gov/rules/final/33-8183.htm). The rules require the disclosure of four categories of fees: (1) Audit Fees, (2) Audit-Related Fees, (3) Tax Fees, and (4) All Other Fees. In addition, the rules precluded nine categories of non-audit services identified by the SEC (titles abbreviated): (1) bookkeeping; (2) financial information systems design and implementation; (3) appraisals; (4) actuarial services; (5) internal audit outsourcing services; (6) management functions; (7) investment adviser services; (8) legal services; (9) expert services. For full titles of the precluded services and short definitions, see SEC News Release 2003-9 of January 22, 2003 (http://www.sec.gov/news/press/2003-9.htm ) and also see SEC’s 2007 FAQs regarding the auditor independence rules (http://www.sec.gov/info/accountants/ocafaqaudind080607.htm ).

FOR THE FULL REPORT, CONTACT DAVID FALCUCCI AT AUDIT ANALYTICS

(508)476-7007 x249 DFALCUCCI@IVESINC.COM

R E G U L AT O R Y R E P O R T I N G

THE ART OF THE IPO: LESSONS FROM FACEBOOK, LINKEDIN, GROUPON AND ZILLOWBY MARIAN GIBBON | CORPORATE ADVISORwww.HuffingtonPost.com

Summer was not kind to Face-book. It was harsher still to Groupon and Zynga. All three companies are new to the public markets. If you were to look to their debuts only, you’d be for-given for concluding that going public is a raw deal. Each of their stocks, to put it nicely, got ham-mered between Memorial Day and Labor Day-the US holidays that bookend summer. The Dow, during the same period? It rose 5%.

Going public is as much art as science. And as with any art, dis-cipline and finesse make all the difference between masterpiece and flop. So for every Facebook, Groupon or Zynga, there is a LinkedIn, Zillow or Michael Kors. Each entered the market last year. Today, all three have stocks that are up more than 100% from their offerings, more than 90% this year-levels of out-performance that every founder, CEO, management team, Board, underwriting group and investor hopes for from an IPO-keeping the romance of the stock market alive.

Diverse in size, stage of devel-opment, offering, share and governance structures, these six companies’ deals yield a hand-ful of do’s and don’ts that can help others navigate entry to the public market-artfully.

Treat public market investors as valuable long-term partners. This is the stock market’s ver-sion of The Golden Rule. Ap-plied wisely, it comes into play long before offering documents are filed, guiding every IPO decision-timing, structure, pric-ing and attitude. Its corollary: don’t give public market inves-tors the impression that they are being ripped-off-or that you hold them in contempt. Facebook and Groupon-and CEOs Mark

Zuckerberg and Andrew Mason-are learning these truths the hard way. Facebook’s missteps: timing (late), pricing (high), structure (complicated), attitude (aloof) and Groupon’s: timing (late), structure (aggressive), attitude (nonchalant). LinkedIn, on the other hand? Flawless timing, fair pricing and professional attitude.

Beware the lure of private share exchanges. SecondMarket-and private share exchanges like it-have proven to be both a blessing and a curse to venture-funded companies. Alternative liquidity platforms for early-stage inves-tors have allowed companies to remain private for longer than in the past. While the cocoon of private ownership is comfort-able, the result has been IPOs that come later in companies’ growth cycles, leading to valua-tion tensions between the private and public markets and a sense among public market investors that they are being fed table scraps. This is one place where Zynga got things right. It banned SecondMarket from dealing in its shares a year in advance of its

October 2012 SingerLewak | 4

IPO. Better yet: go early, share the wealth, learn the markets’ discipline. See: Zillow.

Make key corporate gover-nance provisions easy to un-derstand, communicate and manage. Five out of the six companies here have two classes of stock-Michael Kors being the exception. While the structure clearly hasn’t hurt LinkedIn or Zillow, when the going gets tough, subordinated voting rights give investors one more reason to exit quickly. And Facebook’s staggered lockup provisions? Confusing, messy. Keep it simple: one class of shares, equal voting rights, one set of lockup provisions. It’s working out just fine for Michael Kors.

Sell secondary shares judi-ciously. Primary shares are those sold by the company in its IPO. Proceeds accrue to the company and are used to fund growth, pay down debt and make acquisi-tions. Secondary shares are those sold by the company’s founders, investors, senior management and board members. The more secondary shares sold in an IPO the higher the red flags raised, especially in smaller, younger companies. Zillow got this just right. Not only were no second-ary shares sold in its IPO, exist-ing venture investors doubled down, buying in at the IPO price. Smart move.

Price confidently, but conser-vatively. When LinkedIn went

public last year, its stock shot up over 100% in its first day of trading. And a cry went up in the business and finance press: the stock had been underpriced, the company screwed. I disagreed. To punctuate the point, Face-book’s IPO is an unfortunate real life example of what happens when an IPO is overpriced. It is (much) better to underprice than it is to overprice. Should investors bid the stock up, the company can return to market with a follow-on offering-at a premium to the IPO price. LinkedIn did this. It is far more work to crawl back from a fall. (Compounding Facebook’s pricing error? 67% of the shares in the deal were secondary. An overpriced offer-ing full of secondary shares is a double disaster.)

Underpromise. Overdeliver. In April, on top of a solid first quarter, Zynga raised its earnings outlook for the year. Just three months later during its second quarter report, it cut EBITDA projections for the year in half, dropping them from400 million to200 million. Ouch. The most

important thing a company can do, once public, is execute. The second most important: manage expectations effectively.

It’s regrettable that an IPO the size and import of Facebook’s was a flop. Culprits are many. For those considering entry to the public markets, don’t be put off. Markets are as forgiving as they are taxing. Since Labor Day, Facebook and Groupon shares are up over 25%, Zynga’s, over 15%. The travails of all three companies have largely been self-inflicted. Learn from their mis-takes and the others’ successes. Follow the spirit of the guidelines here--pay attention to the details, think long-term, keep things simple and clear, be open, stay humble--and execute--you’re far more likely to have a masterpiece than a flop on your hands.

My track record: Last year, I wrote articles on Facebook, Zil-low, LinkedIn, and Groupon. I was concerned about the risk in-herent in Facebook’s private deal, I thought Zillow’s story wasn’t snappy enough, LinkedIn’s deal was priced just fine and Groupon was likely facing a struggle. I got three out of four-and I’m pleased Zillow proved me wrong. All of the articles I’ve written about IPOs are here.

The most important thing a company can do, once

public, is execute. The second most important:

manage expectations effectively.

BY MARIAN GIBBON TWITTER.COM/MARIANGIBBON

HUFFINGTONPOST.COM

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