Less than one-third of executives with investment banks say that the JOBS Act, which passed last April, has boosted the number of IPOs on U.S. exchanges, according to a recent survey by accounting and consulting firm BDO USA.
Conversely, a similar survey in mid-2012 showed 55 percent of investment bankers predicting that the JOBS Act would increase the number of businesses going public. The JOBS ACT – short for “Jumpstart Our Business Startups Act” – was intended to “allow Main Street small businesses and high-growth enterprises to raise capital from investors more efficiently, allowing small and young firms across the country to grow and hire faster,” according to this release from the White House, issued the day the President signed the bill.
The enthusiasm behind the bill was bipartisan. Tennessee Republican Stephen Fincher sponsored H.R. 3606, the foundation for the JOBS Act. In a release about the Act, Rep. Fincher stated, “Small businesses and entrepreneurs are the backbone of our nation and our economy. This bill puts the focus on the private sector, capitalism, and the free market, providing the jumpstart our nation’s entrepreneurs and small businesses need to grow and create jobs.”
So far, however, the Act’s actual impact on boosting IPOs appears limited. The number of IPOs in 2012 was 128, almost flat with the 125 in 2011, according to Renaissance Capital. Moreover, while total IPO proceeds in 2012 were the second highest over the past ten years, one-third of that was due to Facebook’s $16 billion IPO, BDO reports.
Several factors likely account for investment bankers’ dampened enthusiasm for the JOBS Act, says Wendy Hambleton, partner in BDO’s capital markets practice. For starters, of course, there’s the fact that the IPO market is showing little growth. Moreover, a provision within the Act allows companies to complete an initial filing on a confidential basis; that is, the SEC can review the documents without the company making any information public until 21 days before its road show begins.
In the past, information on companies filing to go public was more rapidly available. The change means investment bankers have a harder time deciding how to time a company’s IPO, since they don’t know what other firms might be going forward as well. For instance, a banker may want to time a tech company’s IPO to coincide with that of another tech company, in an attempt to generate some “buzz in the market,” Hambleton says.
“Now, you don’t have the ability to do any strategizing around this.”
In fact, almost half of capital market execs say that investors groups are leery of meeting with companies that are privately “testing the waters,” as it were. Instead, they prefer to wait until the companies publicly commit to a stock offering, BDO found. Another provision in the JOBS Act allows many “emerging growth companies” – generally, those with less than $1 billion revenue – to delay adopting new or revised accounting standards until private companies are required to adopt them, assuming the standard applies to companies that aren’t public.
Many investment bankers don’t like this provision, as it makes it difficult to compare one company to another, Hambleton points out. Some are advising their clients to state that they won’t take advantage of this provision, she adds. To be sure, some of the doldrums in the IPO market have more to do with macro-economic factors than regulations, Hambleton points out.
The survey took place in December 2012, when concerns about Washington’s ability and willingness to deal with the economic challenges facing the country – namely, the potential fiscal cliff – were peaking. If the Act didn’t have a huge impact last year, what about 2013? Again, it’s hard to say. While half of investment bankers expect to see an increase in IPOs this year, 31 percent expect the market to stay flat, again according to BDO. The greatest threats to a robust IPO market? About 37 percent of the survey respondents say it’s the threat of tax increases and spending cuts, while one-third point to global political and financial instability.