On April 27, 2018, the Securities Industry and Financial Markets Association (“SIFMA”), the leading industry group representing broker-dealers, banks and asset managers, along with other securities industry related groups, released a report called “Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public” (the “Report”). In response to the decline in the number of IPOs and the number of public companies generally in the United States over the last twenty years, the Report provides recommendations aimed at reducing perceived impediments to becoming and remaining a public company. As the Report notes, the United States is now home to only about half the number of public companies that existed 20 years ago. This decline is believed to have had adverse repercussions for the American economy generally, and the jobs market specifically. In addition, the growth of private capital markets at the expense of public capital markets has raised concerns that individual investors are being marginalized. More specifically, as many of the most innovative companies in the U.S. stay private longer and raise significant amounts of capital privately, the returns generated by such companies appear to accrue disproportionally to institutional, high net worth and other similar investors.
The Report makes recommendations in five areas:
1. enhance several provisions of the Jumpstart Our Business Startups Act (the “JOBS Act”);
2. encourage more research on emerging growth companies (“EGCs”) and other small public companies;
3. improve certain corporate governance, disclosure, and other regulatory requirements;
4. address concerns relating to financial reporting; and
5. tailor the equity market structure for small public companies.
Details and analysis of these five recommendations from the Report are provided in the Gibson Dunn client alert here.
Since at least 2012, the Securities and Exchange Commission (“SEC”) and Congress have proposed various reforms aimed at improving the attractiveness and competitiveness of the U.S. public capital markets. In the last year, consistent with SEC Chairman Jay Clayton’s core principles, the SEC has taken steps to further expand the benefits of the JOBS Act and the FAST Act to a broader range of companies, such as allowing non-EGCs to make confidential submissions of initial registration statements, permitting all companies to confidentially submit registration statements in connection with offerings within one year of an IPO and granting more waivers of financial statement requirements. In addition, there have been a number of legislative proposals intended to further expand the benefits of the JOBS Act and the FAST Act. The Report is consistent with these themes. Ultimately, a company’s decision whether to go public is driven primarily by business rationales, including valuation, liquidity and investor considerations. However, reducing the burdens of becoming and staying a public company without compromising investor protection will benefit both companies and investors, help ensure that the U.S. public capital markets remain attractive and competitive in the face of global competition, and provide more diverse investment opportunities for all investors.
Thanks to Sean Sullivan and Jessica Annis in our San Francisco office, Nic Dumont in New York and Victor Twu in Orange County for their assistance on this post as well as the related client alert.