JOBS Act: Pre-IPO companies opt for stealth mode

Companies have opted for the new confidential filing process over the public one at a 3-to-2 ratio, says SEC deputy director

The Jumpstart Our Business Startups (JOBS) Act, signed into law earlier this year, has the potential to significantly affect the IPO process for smaller companies in a number of ways: reduced requirements for SEC filings, more freedom in communicating with qualified institutional buyers and institutional accredited investors, and fewer restrictions around communications by analysts.

But one aspect of the JOBS Act – a confidential SEC filing mode – has apparently already been embraced by companies on an IPO path.

Speaking at a Practicing Law Institute conference, SEC deputy director, division of corporation finance Paula Dubberly said that since the JOBS Act passed, companies have opted for the new confidential filing process over the public one at a 3-to-2 ratio.

Companies that come under the JOBS Act, with requirements like having annual revenues of less than $1 bn, can opt for an IPO process in which they submit their filings to the SEC confidentially.

The agency then reviews the filings and offers feedback. A company using the confidential process can keep its filings private until 21 days before its IPO roadshow starts.

The new confidential process can let a company avoid the public spotlight over possible feedback that can raise early criticism.

Groupon is an example of a company that faced sometimes withering commentary over questions that the SEC raised about its accounting definitions and practices. Even today, many stories about the company reference those early comments.

The JOBS Act would have allowed a company like Groupon to work things out with the SEC quietly.

Although the initial S-1 and all amended versions become public, there is less time for analysts and the press to compare differing versions to highlight changes.

Since April 5, when the JOBS Act was signed and went into force, 30 companies have opted for the confidential process while 20 companies filed publicly.

One major reason some companies have filed publicly is concern over appearance and whether investors will be suspicious of confidential filings.

Depending on the results that companies see after confidential filings, it could be that the percentage filing confidentially could increase, if they see no substantial negative reaction.

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