BuzzFeed SPAC mess highlights controversial stock transfer agents
Last week's BuzzFeed stock mess, in which ex-employees were unable to sell their sinking shares, put a spotlight on stock transfer agents; essential capital markets players who generally prefer to remain in the shadows.
Why it matters: The stock transfer industry is an oligopoly that hasn't endeared itself to many of the venture capital and private equity funds whose portfolio companies rely upon it. Or, more to the point, I heard all sorts of creative obscenities on Monday when speaking with firm CFOs who normally are loath to return my calls.
Market intelligence: Stock transfer used to be the domain of banks, which operated the businesses as loss leaders. Today, though, there are only a handful of major players.
- The largest is Computershare, an Australia-listed company.
- It's followed by Continental, which seems to dominate the SPAC merger market (including the BuzzFeed deal).
- There's also American Stock Transfer, which soon will be merged with U.K.-based Equiniti (via PE sponsor Siris Capital Group) and SRS Acquiom (which only works on private share mergers).
Complaints about stock transfer agents mostly revolve around unexplained waits, mistakes and antiquated tech interfaces. All of which appears to be getting exacerbated by record deal activity, although Computershare SVP Michael Lang tells Axios that "we've not experienced any delays."
- Following our BuzzFeed piece, I received numerous emails from people who've had maddening stock transfer agent experiences, often including lengthy email trails. Some were tied to SPACs, some to IPOs, some to post-IPO lockup expirations and some to mergers.
- One longtime Silicon Valley CFO tells me that the current situation is reminiscent of the dotcom boom, when share transfers could take up to two weeks to be completed. "It's not quite as bad right now," she says, "but it's still very, very bad."
To be sure, stock transfer is a tough business, and SPAC mergers have added layers of complexity because of the shareholder vote and redemption processes. And most of their communication is with company lawyers — not with CEOs or investors — which only adds to the opacity.
- Steven Nelson, president of Continental says: “We have reviewed the entire record on the BuzzFeed deal and, while we are sensitive to the shareholders’ inability to sell before the share price sank, we feel that Continental performed appropriately and pro-actively given the timing of the records we received and the directions received from our customer and their counsel.”
But I simply couldn't find a single person outside of the stock transfer firms themselves who had something nice to say. And that means the industry has a big problem, and could be ripe for disruption. Kind of like we've seen a group of startups emerge around property title processing.
- Brian Hirsch is founder of Tribeca Venture Partners, which focuses almost exclusively on New York City startups. But Hirsch says he'll make one exception: "Any entrepreneur on the planet who can solve this problem at scale, please email me."
- Several sources suggested that this seems to be an obvious business opportunity for employee equity management unicorn Carta, but CEO Henry Ward didn't return a request for comment.
The bottom line: Stock transfer is an essential service, and people seem more interested in complaining about the status quo than in changing it.