Wednesday, September 18, 2013
EGCs lead IPOs due to JOBS Act’s relaxed SEC regs, like secret review filings, exempt exec. compensation and reduced financial disclosures.
For the record as a TWITTER novice, I had to look up the rules pertaining to the 140 character limit and make several attempts to compose a coherent sentence under the limit. For a more thorough discussion...keep reading.
The latest news on the IPO market is that TWITTER has announced it has filed with the SEC. Last week, Twitter tweeted (a cannibalistic concept in my mind at least), “We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.”
The JOBS Act, passed in April 2012, focused in part on easing access to capital for “smaller” companies. The JOBS act created a new category of issuer, emerging growth companies (EGCs), those with revenue less than $1 billion, and eased the registration regulatory burdens for IPOs. (To recap: “smaller” means less than $1 billion in revenue.) The regulatory relief offered by the JOBS Act allowed for EGCs to (1) submit a confidential draft registration statement for nonpublic review by the SEC, (2) be exempt from disclosing for up to 5 years executive compensation and complying with say on pay votes, and (3) disclose 2 years instead of 3 years of financial statements.
While the number of IPOs in 2013 hasn’t spiked, a majority of companies participating in IPOs have been EGCs and have taken advantage of the relaxed regulations available to them. In a report issued by Earnst & Young on the one-year anniversary of the JOBS Act, it stated that as of April 2013”
the IPO market has been dominated by EGCs, representing 83% of IPOs that went effective since April 2012. The majority of EGCs are taking advantage of the confidential review accommodation and reduced executive compensation disclosure relief available to EGCs.
The confidential initial filings have continued to be utilized by nearly every company that qualifies as an EGC, and Twitter is no exception. The confidential draft registration statements have received some criticism for keeping the IPO pipeline shrouded in mystery and investors in the dark. Investors will still have an opportunity to review the financials before Twitter or any EGC goes public, the timetable is just condensed under the new law. Considering the speed with which the market can absorb, distribute, and analyze information, the condensed timeline shouldn’t pose too much of a problem, and is (according to an article in the New Yorker) consistent with the timeline previously applied to IPOs in the 1980’s like when Apple and Microsoft first went public. If there is any concern for investors it should be over eliminating the third year of financial disclosures, not the ability to submit a confidential draft registration statement.
With these relaxed standards for EGCs, Twitter could mark the beginning of a tech-heavy end to the 2013 and start of the 2014 IPO season. The market is watching for the following companies to join the ranks:
For more information on the 2013 IPO record thus far, see: