Facebook Inc (NASDAQ:FB) went through what will go down as one of the worst IPOs of all time less than two weeks ago. Lessons from the process will be learned by many companies who won’t fail to study the problems that led to the proceedings. Some of those companies have gone a step further and have begun filing for their offerings confidentially.
The JOBS Act brought into existence a process by which firms could file for their IPOs confidentially without the usual public oversight. We warned at the time that the name of the Act was a misnomer.
It is just one of several controversial measures that have been introduced whose efect has not yet been properly gauged.
Since the introduction of the process the numbers of firms opting for confidentiality is growing at a greater rate than those filing in the traditional way. This does not bode well as the effects of the process are completely unknown. One thing is certain. The process takes away from transparency in private industry that is so important to investors.
The rules allow smaller companies, those with less than $1 billion in revenue, to submit their offerings for review with the SEC privately without notifying the public. Needless to say Facebook would not have qualified. A company does not have to file publicly until three weeks before it goes on its IPO roadshow.
Confidential filings are something to be looked out for in future though they will be difficult to see. Before the first companies coming through to the public having gone through this process arrive there is no telling the effect it will have on investors or the market.
In other IPO news Kayak Software Corp. has decided to push back the date of its IPO in response to Facebook’s disaster. The company is rightly allowing the market time to recover from that cataclysm before going to market. Investors will not have the same relish for tech IPOs for some time after the events earlier in May.
Kayak offers online travel booking services. Its IPO would receive nowhere near the hype that Facebook’s did but it is likely their return would be much less if they filed any time soon. Just as Facebook waited until there was recovery in the markets to go Public so must Kayak wait until the Facebook effect has receded.
The JOBS Act is reducing transparency for investors and giving the power to firms who may have something to hide. Facebook’s immense failure is clearly, from Kayak’s example making firm’s reconsider their IPOs. Confidentiality will surely be de jure for start ups going forward.
