Toppan Vite question: The reasons for using a confidential IPO are most obvious for technology startups, since they often have lower revenue figures. Are there any other types of companies or particular sectors for which confidential offerings are especially useful or appropriate? 4 dealmakers weigh in.
Lise Buyer: I don't actually think the size of the revenues are all that relevant, as potential
investors will clearly have that information in plenty of time. The real advantages are keeping the details of the profit and loss statement and, to a lesser extent, the growth strategy out of the hands of competitors, and keeping the employee base focused on the business with fewer outside distractions. These two advantages work completely across sectors. As long as a company qualifies under the JOBS Act's definition of an EGC, the advantages and disadvantages apply equally.
Meet the Experts:
Kevin Kennedy: For some businesses, like banking, the compensation information is incredibly sensitive. Keeping that out of the public domain as long as possible is a good
thing for those companies. And, if you never go public, never having to disclose it is also good. I would say anyone in a professional service organization, where the compensation
info is particularly sensitive, would be another user of this. To be honest, I think the right question is: Who wouldn't want to file confidentially?
Paul Bork: I would start by saying that confidential IPOs have been hugely popular: former SEC Chair Mary Jo White said in late 2015 that around 85% of IPOs had used the JOBS Act on-ramp since the law’s passage in 2012. I thought that indicated very well the positive reception that the process has received. In all likelihood, the only thing that kept out the remaining 15% of companies was that they were not emerging growth companies, i.e. they had more than US$1bn in revenue.
As for the advantages of the process, I would agree with Kevin’s point about the benefit of being able to fine-tune one’s financial information with the SEC. For a company that is still not public and hasn't had important aspects of its operations and finances disclosed – as well as its dirty linen – they get an opportunity to work out their disclosure booklet with the Commission, and the staff will give you the same kind of attention they do on traditional IPOs. You're able to polish up the disclosures in advance of putting the document in public view, prior to conducting your heavy marketing efforts by road shows and the like.
I would say the shorter you can make the process of making the disclosures public, the better off you are. It reduces the risk, both attendant in the marketplace and with respect to your competitors.
I work specifically on executive compensation issues, and the two sectors where we see a confidential offering used most are technology and biotechnology / life sciences. In those
industries, compensation information is highly sensitive, and viewed by many businesses as a key to their long-term success, their secret sauce. It can provide valuable insights to competitors, but it can also be incredibly disruptive within the organization as people see for the first time what others in the top team are earning. So the confidential IPO approach allows them to hang on to that information for a little bit longer. And equally, if they don't end up going public, they’re not permanently impacted by the information being out there.
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