Thanks to an article today by Emily Chasan, Senior Editor at the WSJ’s CFO Journal, I was reminded that the Confidential Registration provision of the Jumpstart Our Business Startups Act (the “JOBS Act”) is one year old.
This JOBS provision created a confidential SEC review procedure for IPO registration statements of “emerging growth companies” prior to their first registered sale of common equity. Generally, an emerging growth company is an issuer that has less than $1 billion in total annual gross revenues.
Emily reports that since the provision went into effect, 63% of the IPOs were confidential.
The phrase “confidential” is misleading, particularly in an industry that is dedicated to transparency. “Confidential” tends to bring up imagery of James Bond, insider whispers, dark pool trading and pump-n-dump ninjas.
Nothing of the sort. With a confidential IPO registration, all draft IPO registration statements and subsequent amendments are filed with the SEC for nonpublic review. Like all S-1s we submit for clients, the SEC is carefully reviewing the filing.
We’ve helped several companies with their in-house drafting session and confidential S-1 transaction. From our side of the discussion, “confidential” simply means “the elimination of the media frenzy and market speculation.” This has given all the parties involved the breathing room and focus they need to execute this intense, company altering step.
I assume most of you have never participated or seen an IPO drafting session take place. We held a very large one last week for a new Nasdaq issuer. Twelve+ lawyers, investment bankers and company executives sequestered in our conference room for two+ days laboriously dotting every “i” and crossing every “t” on the most important document a company will ever make. Making this process and filing nonpublic allows the all parties involved to be 100% on point, not distracted by market or pundit speculation.
The charts below compare a much hyped IPO with a confidential filed IPO. Both Nasdaq listed. The company on the left had to manage expectations even before they were a public issuer.
As you see, there is nothing confidential about the success of the company on the right.
Have a great day.