The Securities and Exchange commission will allow all companies to confidentially file early documents for initial public offerings, expanding the benefit beyond small businesses.
Privately filing allows a business to gauge interest from investors for a potential deal and adjust its pitch before filing publicly. The process was initially instated with the Jumpstart Our Business Startups Act, signed into law by President Barack Obama in 2012, which allowed companies with less than $1 billion in revenue to submit registration statements for initial nonpublic review.
The process, which will take effect in expanded form on July 10, will be available for all IPOs and most offerings made by a company within a year of entering the SEC's public reporting system, the regulator said in a statement Thursday. The move is meant to make the IPO process more efficient and to help encourage more companies to consider going public, SEC Chairman Jay Clayton, who took the post after being nominated by President Donald Trump, said in the statement.
"Confidential review allows a company to take the first step toward going public without revealing their most sensitive information to competitors far in advance of concluding whether or when they will actually complete their IPO," said Joel Trotter, partner at Latham & Watkins who was on the IPO Task Force whose recommendations helped shape the first iteration of the Jobs Act.
"For larger companies not covered by the Jobs Act, the old system imposed a big upfront cost before a company could really know whether or when it might achieve the corresponding benefit of going public. The new approach addresses that."
Snap Inc., which raised $3.9 billion in March, is one of the largest companies to have taken advantage of the confidential process. Having had revenue of less than $1 billion, the company was able to confidentially file late last year, people familiar with the matter said in November, before publicly unveiling its deal prospectus in February. Shake Shack Inc. and Twitter Inc. were also among so-called emerging growth companies that made initial IPO filings confidentially under the law.
"By expanding a popular Jobs Act benefit to all companies, we hope that the next American success story will look to our public markets when they need access to affordable capital," Clayton said in the statement.
Clayton, 50, previously was a partner at Sullivan & Cromwell, where for more than two decades he advised public and private companies on securities offerings, mergers and acquisitions, corporate governance and regulatory and enforcement matters.
Since Trump nominated him, Clayton has focused on making U.S. markets more attractive. During his confirmation process, Clayton said he wanted to make it more appealing for companies to sell shares to the public rather than rely on private investments. He also promised to be "vigilant" in protecting investors in the process.
Companies are increasingly staying private longer, amassing cash from backers in private funding rounds rather than tapping public markets.
"We applaud the SEC for today announcing it will allow all newly public companies to file registration statements confidentially," Adena Friedman, the chief executive of Nasdaq Inc., said in a statement Thursday. "We have long supported such an action and believe it is one step forward in making the public markets more attractive, which will foster economic growth."
