The IPO market could be poised for a boom.
The Securities and Exchange Commission (SEC) is hoping to incentivize more companies to go public by deregulating a process which would allow companies to hold private talks with investors before formally announcing their stock will be put up for sale, according to a report from The Wall Street Journal on Thursday. This would essentially allow executives to test the appetite for their stock in the public market.
Some smaller companies can already hold these types of preliminary discussions, thanks to a law passed in 2012 known as the Jumpstart Our Business Startups (JOBS) Act. The goal of this bill was to ease regulatory obstacles for small businesses looking to go public, including lowering the revenue threshold and allowing for new methods of capital fundraising.
SEC chair Jay Clayton, who took the helm of the agency last year, has noted on multiple occasions that fewer IPOs limit opportunities for mom and pop investors.
“The reduction in the number of U.S.-listed public companies is a serious issue for our markets and the country more generally,” Clayton said during a speech before the Economic Club of New York in July. “To the extent companies are eschewing our public markets, the vast majority of Main Street investors will be unable to participate in their growth. The potential lasting effects of such an outcome to the economy and society are, in two words, not good.”
During that same address, Clayton noted that the number of publicly-listed companies has declined by 50% over the past 20 years. Meanwhile, the average word count for SEC documents, required to detail IPOs and other corporate disclosures, has more than doubled.
Clayton has also said that in the current environment, when companies do eventually go public, they are at such a late stage in their investment rounds that the average investor is sometimes immediately priced out. Uber, for example, has put off selling its stock and is already valued at $72 billion.
The effort to ease regulatory obstacles for U.S. companies fits in with the Trump administration’s larger theme of promoting growth through deregulation. In an annual report issued on Wednesday by the White House Council of Economic Advisors, President Donald Trump pointed to the White House’s efforts to cut red tape as one of the primary reasons U.S. growth exceeded expectations in 2017.