The 2014 IPO study by Proskauer Rose LLP is a comprehensive analysis of the 2013 US IPO market covering 100 IPOs priced during 2013. Founded in 1875, Proskauer is a global law firm providing a wide variety of legal services to clients worldwide.
Proskauer’s study included in its ambit only US listed C corporations that were headquartered in the United States and indicated a minimum deal size of $50 million in their first public filing.
“The 2013 U.S. IPO market boomed across geographies and industries,” says the report. “In our study, companies with headquarters in twenty-three different states completed IPOs. All of the seven major industry sectors were represented in the IPO market.”
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The study examined several key aspects of IPOs, one of which was the Jumpstart Our Business Start-Ups (JOBS) Act (the “Act”).
JOBS Act: encouraging the smaller companies
The Act was framed with the express intention of boosting public and private capital formation by relaxing certain regulatory norms – thereby making it easier for smaller companies to float public issues. Under the Act, companies with less than $1 billion in annual revenues are categorised as “emerging growth companies” (EGCs) and are eligible to take advantage of its provisions.
Some of the attractive provisions of the Act include confidential SEC submission and review of IPO registration statements, “testing-the-waters” communications, reduced disclosure requirements on finances and executive compensation and an exemption from section 404 (b) of the Sarbanes-Oxley Act.
The Act has been a boon for biotech companies. Indeed, in mid-July, the 100th biotech went public utilizing its provisions.
“Biotech companies are conducting groundbreaking science and face a long and expensive development pathway,” says GlycoMimetics CEO Rachel King. “The JOBS Act was a game-changer for our company because it increased our access to investors and helped us to get our IPO done – allowing us to finance life-saving R&D.”
“The testing-the-waters provision is the greatest thing ever invented,” said Kenneth Moch, the recently departed president and CEO of Durham, N.C.-based drug developer Chimerix Inc.
US IPOs in 2013 and the JOBS Act
77 out of the 100 companies covered by the Proskauer study were qualified EGCs under the Act.
The study found that 88% of the 77 EGCs opted for confidential filing under the Act, while six companies elected not to file confidentially.
Though EGCs are required to provide only 2 years of audited and selected financials, 48 out of the 77 EGCs elected to provide these details for an additional year, i.e. 3 years of audited accounts, and many even went as far as 5 years.
Doubtless, the companies providing extra data did so to ensure that investors would appreciate their long term track record.
Who made it faster to market?
The Proskauer study found that EGCs that did not file confidentially had a disproportionately longer timeline from their first filing to IPO pricing. In fact, non-EGCs were the quickest off the mark.
A sector wise comparison of the timeline to IPO pricing revealed that financial services EGCs opting for confidential filing took the longest (187 days), while non-EGCs companies in the TMT sector were the fastest to market (90 days).
Pricing advantage under the JOBS Act
An interesting finding of the Proskauer study was that EGCs were able to garner better pricing for their issues compared to non-EGCs. Nearly 40% of EGCs had better prices versus range compared to only 27% for non-EGCs. Also note that only 18% of EGCs had to price lower versus their range compared to 30% of non-EGCs.
Testing the waters
As aforesaid, one of the most attractive features of the JOBS Act is the facility to hold “testing the waters” meetings and other interactions with qualified investors before actually going public.
“Companies can have more dialogues with investors,” says Charles Crain, senior manager for tax and financial services policy and emerging companies at the Biotechnology Industry Organisation. “In the past, they’d have a quiet period and then try to cram all these meetings in two weeks or so before their IPO. Now, it’s entirely possible for a company to go out and talk with investors and then not go public.”
The Proskauer study found, however, that EGCs that used “testing-the-waters” communications did not secure any pricing advantage for their issues compared to those that did not use that facility.