On April 5, 2012, President Barack Obama signed the Jumpstart Our Business Startups Act (the "JOBS Act") into law.1 The stated purpose of the JOBS Act was to increase job creation and stimulate economic growth.2 Often referred to as the "IPO on-ramp," the JOBS Act was enacted in part to improve access to public capital markets by alleviating, or in some instances eliminating, some of the restrictions placed on a new category of companies called "emerging growth companies"3 ("EGCs") during the initial public offering ("IPO") process.

Market Overview 2013/2014

Since the passage of the JOBS Act, the U.S. IPO market has strengthened significantly. In fact, 2013 was a record year for the U.S. IPO market—the best since 2000—with a total of 222 companies going public, generating approximately $55 billion in proceeds.4 By comparison, in 2012, roughly 128 companies completed an initial public offering, generating approximately $43 billion in proceeds.5 In the last quarter of 2013 alone, 70 companies priced IPOs—more than any other quarter that year.6 In 2013, the average U.S. IPO return rate was a staggering 41% compared to an average return rate of 21% in 2012.7 For the first time since 2004, the North American region (the United States and Canada) surpassed other regions, including the Asia Pacific region, with roughly a 29% gain in proceeds raised and an average return of approximately 26%.8

The JOBS Act may not be the only driving force behind the recent surge in U.S. IPO activity though. BDO USA, LLP ("BDO"), one of the nation's leading accounting firms, conducted an annual survey of capital markets executives, which concluded that other factors may have contributed to the rise in IPO debuts. Such factors include (i) lower interest rates (increasing investor demand for high-yielding assets), (ii) increased confidence in the U.S. economy, and (iii) successful offerings by other companies. No matter the reason, it remains undisputed that IPO performance in 2013 was impressive, beating benchmark indices, with an average return rate of 41%.

According to quarterly data published by another leading accounting firm, so-called "EGCs" accounted for approximately 81% of all IPOs that priced in 2013. Below are some reforms made available to EGCs navigating the IPO process under the JOBS Act. An EGC usually consults its counsel and the underwriters to determine of which options it should avail itself based on the unique characteristics of the company.

  • Confidential submission of draft registration statement.
  • The option to make limited disclosures or rely on exemptions from certain disclosure requirements for up to five years following an EGC's IPO, including limited executive compensation disclosure requirements.
  • Exemption from the requirements under section 404(b) of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") to have an auditor attest to the effectiveness of the EGC's internal control over financial reporting.
  • Presentation of two years of audited financial statements, as opposed to the three-year requirement applicable to non-EGCs.
  • Allowing both oral and written communications with qualified institutional buyers ("QIBs") and institutional accredited investors before or after the filing of a registration statement to gauge interest in the offering.
  • Allowing broker-dealers to publish or distribute a research report regarding the securities of an EGC.
  • Taking advantage of an extended transition period for complying with any new or revised standards issued by the Financial Accounting Standards Board to its Accounting Standards Codification.
  • Refraining from conducting "say-on-pay" votes at initial annual meetings.

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This article is presented for informational purposes only and is not intended to constitute legal advice.