Today marks the one-year anniversary of the JOBS Act, which was passed in order to help emerging growth companies and startups raise money and go public.
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While the crowdfunding aspect of the JOBS Act has yet to fully take effect due to delays on the part of the SEC, IPO regulations have been loosened. University of Florida professor Jay Ritter told FBN’s Nicole Petallides that IPOs were down 21% in the year since the JOBS Act was passed, calling it a “non-event.”
But Ernst & Young’s Americas IPO Leader Jackie Kelley says that it’s too early to tell whether the JOBS Act will really have an effect on the number of companies that decide to go public. “It was a challenging year on a macro level. We had elections, the fiscal cliff, hurricane Sandy – and about 10 other things I should probably list,” says Kelley.
“For investors, the appetite for IPOs is lessened by market distractions, because their focus is on rebalancing their portfolios and investing in lower-risk investments,” she adds. As a result, Kelley believes that 2012 served as a “ramp-up year,” and that a truer test of the JOBS Act’s effect on IPO filings will be seen in 2013.
Already, Kelley is encouraged by the number of filings made in the first quarter of 2013: “The fourth quarter is usually much stronger than the first quarter when it comes to IPOs, so the fact that we had 32 IPOs in the first quarter of 2013, and 33 in the last quarter of 2012 – it means that we’re trending really positive.”
That said, Kelley says that her research has revealed some surprises with regard to how many companies actually want to take advantage of the loosened regulations. Though the JOBS Act allowed emerging growth companies to file with only two years of audited statements – rather than the previously required three years – only 32% of companies took advantage of that, while 68% filed with three years of statements.
“Many have the data available, and because they’re going to be compared with public companies providing three years of information, they want to show their maturity and growth story,” explains Kelley.
The JOBS Act also allowed companies to adopt new accounting standards more slowly than the largest public companies, but 78% of the 96 IPOs that Kelley studied decided not to opt out of the new standards.
The aspect that emerging growth companies have taken advantage of is the ability to provide compensation information for fewer executives. “They say that all of the disclosure is distracting internally,” says Kelley. “Additionally, they view it as competitive intelligence. If they don’t have to release the information to their competitors, why would they?”
Looking at whether the loosened-up standards have hurt the quality of the companies going public, Kelley said that the newly filed IPOs have been performing as well as every other company. “There are no real trends either way. And some of the statistics might suggest that the performance metrics are actually a little higher,” says Kelley.