This Fall has seen a resurgence of IPOs, and radical changes in the law of private placements. Both the IPO and the private placement markets remain in unclear regulatory territory, however; this is the teaching of the Practicing Law Institute’s Annual Institute on Securities Regulation, a three-day law-fest being held this week in New York City for this, the 45th consecutive year.
This post focuses on IPO practice.
October, 2013 saw thirty-three public offerings, the strongest month monetarily since May, 2012 (which in turn was dominated by a single offering, that of Facebook). Sixteen IPOs also were pricing this current week, the most in a given week since November, 2007.
The JOBS Act, enacted April 1, 2012, defined broadly a class of “emerging” companies as those with sales less than $1,000,000,000 per annum. These companies receive certain accommodations in the going public process:
- They need only provide two years of audited financials rather than three; many companies continue to include three years of audits, although certain companies not being sold on past performance (such as emerging bio techs) have indeed cut back to two years.
- The SEC now permits confidential initial submissions of registration statements, which has become the market norm for initial filings.
- The ability to “test the waters” to determine the salability of an IPO, both prior to and during the filing period for these emerging companies, is being used extensively; it was originally thought that this process would narrow the pricing range, but in fact it is primarily used to explain a complicated story to investors, particularly in the life sciences.
- The JOBS Act also reduced the reporting obligations of emerging companies for a period of time following their IPO, notably relief from the requirement that auditors pass on the adequacy of internal financial controls; interestingly, CEOs who must certify as to the adequacy of such controls nonetheless often are insisting upon obtaining the comfort of auditor signoff.