
14.	Equity

Our equity capitalization has changed significantly during the past three years. The following timeline illustrates the key events that resulted in those changes:



Avantor Funding, Inc.		Avantor, Inc. prior to the IPO		Avantor, Inc. following the IPO
Avantor Funding, Inc.		Avantor, Inc. prior to the IPO		Avantor, Inc. following the IPO

	November 21, 2017		May 17, 2019
	Legal restructuring and VWR acquisition		IPO and related events

Avantor, Inc. following the IPO

The following table presents the equity capitalization of Avantor, Inc. following the IPO:



(shares in millions)	Par value per share		Shares authorized
Undesignated preferred stock	$	0.01	50.0
MCPS	0.01		25.0
Common stock	0.01		750.0

MCPS

MCPS accrues cumulative dividends at a rate of 6.250% per annum on the liquidation preference of $50 per share. Accrued cumulative dividends in arrears as of December 31, 2019 was $8.0 million, and we paid a dividend of $31.3 million during the year ended December 31, 2019. Each share of MCPS converts into between 3.0395 and 3.5714 shares of common stock, depending upon the average trading price of our common stock leading up to the conversion date and subject to customary anti-dilution adjustments. The MCPS converts:


•	Automatically on May 15, 2022;


•	Following the occurrence of a change of control or certain other defined events, in which case holders are also entitled to receive a make-whole dividend equal to the present value of all remaining dividends that would have accumulated through May 15, 2022; and


•	At any time at the option of the holder at the minimum conversion rate of 3.0395.

The holders have the right to appoint two additional members to the board of directors if dividends on the MCPS have not been declared or paid for the equivalent of six or more dividend periods. The holders do not have any other voting rights.

In the event of any bankruptcy, liquidation, dissolution or winding up of the Company, the holders are entitled to a liquidation preference of $50 in cash per share before any payment or distribution is made to holders of common stock.

Common stock

Each share of common stock entitles the holder to one vote for applicable matters. Holders are entitled to receive dividends declared by the board of directors and a pro rata share of assets available for distribution after satisfaction of the rights of the preferred stockholders.

Initial public offering and related events

In 2019, we completed an IPO of our common stock and MCPS. We sold 238.1 million shares of common stock at a price per share of $14, resulting in net proceeds of $3,231.9 million after deducting underwriting discounts, commissions and other offering costs of $100.8 million. We also sold 20.7 million shares of MCPS at a price per share of $50, resulting in net proceeds of $1,003.7 million after deducting underwriting discounts, commissions and other offering costs of $31.3 million.

In connection with the closing of our IPO, we filed an amended and restated certificate of incorporation to effect a five-for-one split of our common stock and authorize the classes of stock noted above. All shares of common stock, stock-based instruments and per share data included in these financial statements give effect to the stock split.

Redemption of series A preferred stock

In connection with the IPO, we redeemed all outstanding series A preferred stock at an aggregate redemption price of $2,630.9 million. The series A preferred stock redemption price was equal to the sum of their $2,410.5 million liquidation preference on such shares of series A preferred stock and a make-whole premium of $220.4 million.

In connection with the redemption, we eliminated the authorized shares designated as series A preferred stock, making those shares available for other preferred stock designations.

Conversion of junior convertible preferred stock

As a result of the completion of our IPO, all outstanding shares of junior convertible preferred stock automatically converted into 194.5 million shares of common stock. The number of shares of common stock received upon conversion of the junior convertible preferred stock was based on the $2,722.5 million million liquidation preference of such stock divided by the IPO price per share of common stock.

In connection with the conversion, we eliminated the authorized shares designated as junior convertible preferred stock, making those shares available for other preferred stock designations.

Avantor, Inc. prior to the IPO

The following table presents the equity capitalization of Avantor, Inc. prior to the IPO:



(shares in millions)	Par value per share		Shares authorized
Series A preferred stock	$	0.01	25.0
Junior convertible preferred stock	0.01		5.0
Undesignated preferred stock	0.01		10.0
Common stock	0.002		2,675.0
Class B stock	0.01		0.3

Series A preferred stock

In 2017, we issued 2.0 million shares of series A preferred stock and detachable warrants to purchase 7.0 million shares of common stock for cash proceeds of $2,000.0 million. Those proceeds were reduced for issuance costs of $183.6 million, resulting in net proceeds of $1,816.4 million. The net proceeds were then allocated to the series A preferred stock and the warrants based on their relative fair value. As a result, $1,725.6 million was allocated to the series A preferred stock, and $90.8 million was allocated to the warrants and recorded as an addition to common stock including paid-in capital.

The series A preferred stock was redeemable upon the occurrence of an event that was not within our control and therefore presented as redeemable equity. Holders of the series A preferred stock were also entitled to receive quarterly cumulative dividends payable in additional shares of series A preferred stock at a rate of 12.5%.

The following table presents the changes in the series A preferred stock:



(in millions)	Year ended December 31, 2019					Year ended December 31, 2018			Year ended December 31, 2017
(in millions)	Shares		Amount			Shares	Amount		Shares		Amount
Beginning balance	2.3		$	2,297.3		2.0	$	2,027.8	$	—	$	—
Issuances, net of issuance costs and warrant value	—		—			—	—		2.0		1,725.6
Adjustment to redemption value	0.2		220.4			—	—		—		274.4
Accumulation of yield	0.1		113.2			0.3	269.5		—		27.8
Redemption	(2.6	)	(2,630.9		)	—	—		—		—
Ending balance	—		$	—		2.3	$	2,297.3	2.0		$	2,027.8

Junior convertible preferred stock

In 2017, we issued 1.3 million shares of junior convertible preferred stock for cash proceeds of $1,320.6 million. The proceeds were reduced for issuance costs of $88.0 million resulting in net proceeds of $1,232.6 million. We issued an additional 0.4 million shares in exchange for legacy equity interests in connection with the November 2017 legal entity restructuring discussed below.

The junior convertible preferred stock was convertible with no limit on the possible number of shares to be issued, so settlement in shares could not be assured. Accordingly, we presented the junior convertible preferred stock as redeemable equity. It was not subsequently remeasured at redemption value because redemption was not deemed probable. Holders were entitled to participate in dividends and distributions as declared by the board of directors on an if-converted basis with the holders of the warrants and common stock.

In connection with our IPO, each share converted into shares of common stock as described above.

The following table presents the changes in junior convertible preferred stock:



(in millions)	Year ended December 31, 2019					Year ended December 31, 2018			Year ended December 31, 2017
(in millions)	Shares		Amount			Shares	Amount		Shares	Amount
Beginning balance	1.7		$	1,562.0		1.7	$	1,562.0	—	$	—
Issuance, net of issuance costs	—		—			—	—		1.3	1,232.6
Effects of legal entity restructuring	—		—			—	—		0.4	329.4
Conversion	(1.7	)	(1,562.0		)	—	—		—	—
Ending balance	—		$	—		1.7	$	1,562.0	1.7	$	1,562.0

Warrants

As noted above, in 2017 we issued 7.0 million detachable warrants with the series A preferred stock. Holders of warrants were entitled to participate in dividends and distributions as declared by the board of directors on an if-converted basis with the holders of outstanding shares of junior convertible preferred stock and common stock. Each warrant was exercisable for a share of common stock at a price of $0.002 per share. During 2019, all outstanding warrants were exercised.

Class B stock

Shares of class B stock had no voting or economic rights and were convertible into common shares upon a change of control or a qualified initial public offering if a certain performance threshold was met. Since the performance threshold was not met at the time of our IPO, the shares of class B stock were canceled in 2019.

Legal entity restructuring

The purpose of the November 2017 legal entity restructuring was to create a new capital structure for new debt and equity investors to fund the VWR acquisition. A new parent was formed for this purpose named Avantor, Inc., as previously described. The legal entity restructuring also simplified the corporate structure. The effects of the legal entity restructuring are explained as follows:


•	Exchange of legacy common stock and noncontrolling interest — Common shares of Avantor Funding, Inc. and the noncontrolling interest were exchanged for shares of junior convertible preferred stock and common stock of Avantor, Inc. As a result, a legacy noncontrolling interest was derecognized.


•	Deferred tax effects — We increased common stock including paid-in capital and reduced our deferred income tax liabilities to derecognize the temporary differences related to the noncontrolling interest, which included an outside basis difference adjustment, a step-up basis adjustment and an adjustment to a net operating loss carryforward.

The following table presents the financial effects of the November 2017 legal entity restructuring as summarized on the statement of stockholders’ equity or deficit:



	Avantor, Inc. stockholders’ deficit												NCI		Total
(in millions)	Common stock including paid-in capital			Accum-ulated deficit			AOCI			Total			NCI		Total
Exchange of legacy common stock	$	(329.4	)	$	—		$	—		$	(329.4	)	$	—	$	(329.4	)
Exchange of legacy non-controlling interest	(278.6		)	(37.9		)	(10.5		)	(327.0		)	327.0		—
Deferred tax effects	175.8			—			—			175.8			—		175.8
Total	$	(432.2	)	$	(37.9	)	$	(10.5	)	$	(480.6	)	$	327.0	$	(153.6	)