IPO INSIGHT: IPO Attorneys Hope Legislature Will Help Startups Go Public
What's in store for the publicly traded and their future in M&A
January 9, 2012
It’s a solid week into the New Year and IPO professionals have their predictions of what’s to come for 2012. Public and investor relations firm KCSA Strategic Communications tallied the opinions of 50 securities attorneys who worked on 70 percent of the IPOs listed on the U.S. exchanges last year. One element from the study that got my attention -57 percent of the attorneys polled expect that small companies will have an easier time getting their foot in the door of the capital markets if the government loosens up on some regulatory guidelines.
Apparently, the attorneys are waiting to see if the Schumer-Toomey bill will pass. The bill is backed by Sens. Charles Schumer (D-N.Y.) and Pat Toomey (R-Pa.) and titled Reopening American Capital Markets to Emerging Growth Companies Act. Proponents say it will eliminate some of the obstacles that small businesses may have to face if they decide to take their company public.
When the Sarbanes-Oxley Act came into law in 2002 it became more difficult and very expensive for smaller companies to prepare to go public. The new rule would make it less costly and quicker for small companies to pursue an initial public offering, says Robert Treuhold, partner, Shearman & Sterling’s Capital Markets and M&A Groups. “The middle-sized companies would not have to get its independent accountants to do a review of the internal controls and give a 404 certification.”
The SEC already exempts publicly-traded companies that are making less than $75 million in revenues from paying the hefty fee, which generally starts off between $1 million to $2 million per year.
The senators are hoping that the change would be made for those companies that sit within the emerging growth category. The IPO hopefuls should have no more than $1 billion in revenue when they file their S-1, and $700 million or less after they have floated on their selected stock exchange.
If a company happens to surpass $1 billion in revenues, it would have a one year transition at which point it would have to comply with SEC regulations. However, if the company stays small, it would never have to incur that cost, Treuhold explained.
“The theory is that the bill should make it easier for companies to be bought up, restructured and re-floated. If they are under the $1 billion threshold it would be less costly for them to do so, and that’s a good thing,” Treuhold stated.
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