JOBS Act Does Little To Increase IPOs
Congress approved the Jumpstart Our Business Startups (JOBS) Act last year with the desire to improve startups’ ability to get investments and then make it easier for them to go public. But it hasn’t done much for the IPO market beyond making it uncertain who is about to go public.
Only 29 percent of investment bankers believe the act has been effective in increasing the number of initial public offerings, according to a poll released this morning by the Chicago-based accounting firm BDO.
The poll confirms the unanimous sentiment of a panel of experts at the ICR XChange conference last week. Panelists said the act has had little impact on the number of companies that are going public. In short: companies either go public or they don’t. They may take advantage of some of the law’s rule changes, but if they go public they were probably going to do so, anyway.
The act had a number of main provisions. It allowed companies to take on as many as 2,000 shareholders before they have to start making publicly reporting earnings. It enabled crowdfunding for startup businesses and it also enabled smaller companies to file for their IPOs privately—such companies have to make their intent public only three weeks before their roadshow.
More than 100 companies used that private filing provision last year, according to the SEC—the North Carolina-based casual dining chain Cheddar’s is believed to be among them. Bob McCooey, senior vice president of capital markets and new listings for the global client group at Nasdaq, told me last week that he knows of many companies that have filed privately, including a number of consumer companies.
In theory, the private filing provision is supposed to encourage companies to test the waters of an IPO filing without making all their financial documents available to the public. But McCooey, and others, believe many companies filing privately would ultimately go public, anyway. Even if that confidentiality provision encourages more companies to go public, he said that the increase in the public filing threshold to 2,000 shareholders would reduce IPOs—making the Act a wash.
For their part, investment bankers don’t like it. According to the BDO poll, 80 percent of investment bankers say the private filing has had a negative impact on their ability to advise clients, though only 9 percent thought that the difficulty was substantial. Nearly half of capital markets executives in the poll said that investor groups are reluctant to meet with businesses that file privately, preferring to do so once the company has made a public commitment with their offering.
All that said, McCooey expects more companies to go public this year than did last year. And he noted that there were 130 leveraged buyouts of $1 billion or more between 2005 and 2007, a backlog that will have to be relieved sometime. “120-some of them are still floating around,” he said. “That’s a pretty big backlog.”