When Twitter announced their confidential IPO last year, many pundits took this as a negative move. “Something is up over there…” Bah. As blogged here, the word “cautious” is a better word to describe the motives of the confidential IPO process.
What is a confidential IPO? The JOBS Act allows firms with less than $1 billion in annual revenue (emerging-growth companies or EGCs) to keep their IPO filings confidential up until just three weeks before they roadshow and market their shares. This is in contrast to the typical S-1 file which is openly filed months before the roadshow giving potential investors, media, peers and competitors a longer time window to consider an investment.
So the questions are… what are investors missing? Is there material information they are not seeing? What is held confidential? What is the SEC doing? Are investors going to “get screwed” from this clock-and-dagger filing?
- No information is held back from potential investors.
- The SEC is doing the exact same work they always do with a “traditional” S-1 (IPO) filing.
As you will read in the whitepaper, the single workflow difference is when the S-1 file is released to the public. The confidential IPO process only alters the timeline of the S-1 disclosure, not the material information within the S-1. Traditional or confidential IPO – the same amount of information is disclosed.
Why file confidential? The confidential filing gives EGCs some elbow room to discover different options to access required capital… including a public offering, a complete sale or some other capital-raising path. The confidential option is very useful for companies in a market that is demonstrating shorter pricing windows due to volatility. They can begin the regulatory review process quietly and if “The Market” environment becomes unfavorable, they can peacefully stop the process without facing any market backlash for “pulling their IPO.”
Lastly, in situations like Twitter perhaps, a confidential filing lessons the intense media spotlight – allowing the executive team to focus.
Vintage Filings has worked with hundreds of companies for their transactions. Here is one of our confidential IPO clients interviewed in Forbes.
Have a great day.