A bi-partisan piece of legislation introduced by Rep. Stephen Fincher (R-TN) and Rep. John Delaney (D-MD) that would build on and expand the JOBS Act of 2012 by making improvements to the IPO process for emerging growth companies has been marked-up and approved by the House Financial Services Committee in a 56-0 vote. The Improving Access to Capital for Emerging Growth Companies Act, H.R. 3623, would reduce the number of days that emerging growth companies must have a confidential registration statement on file with the SEC from 21 days to 15 days before they can conduct a road show.
H.R. 3623 would also allow a one-year grace period for an issuer that began the IPO process as an emerging growth company to complete its IPO as an emerging growth company.
Rep. Fincher described the reforms worked by H.R. 3623 as simple, technical improvements to the JOBS Act that improve the IPO process and allow emerging growth companies to continue growing and providing jobs. He noted that, since the passage of the JOBS Act in April 2012, which established the emerging growth company category in Title I, more than 200 companies have registered with the SEC as emerging growth companies. At the one-year anniversary of the JOBS Act, he noted, a study by Ernst & Young showed that approximately 78 percent of all publicly filed IPO registration statements and approximately 83 percent of the IPOs that went effective since April 2012 were filed by emerging growth companies. (See Cong. Record, Nov. 22, 2013, p. E1756)
IPO Process reformed.
During the mark-up, Rep. Delaney said that the bill creates a more streamlined IPO process without sacrificing investor protection. He added that for an emerging growth company the IPO process is a difficult moment, which can be costly, timely and cumbersome. But, at the same time, said Rep. Delaney, investor protection is at its highest during the IPO process. The SEC does a full review of the filing, he noted, and this is the time when the audit firms establish all the important accounting policies for the company and the underwriters conduct due diligence. In addition, most of the offerings are usually sold to institutional investors, who engage in significant diligence.
H.R. 3623 also directs that, with respect to an emerging growth company, within 30 days of enactment, the SEC must revise its general instructions on Form S-1 to indicate that a registration statement filed or submitted for confidential review by an issuer prior to an initial public offering may omit financial information for historical periods otherwise required by Regulation S-X as of the time of filing or confidential submission of the registration statement, provided that the omitted financial information relates to a historical period that the issuer reasonably believes will not be required to be included in the Form S-1 at the time of the contemplated offering. Another proviso is that prior to the issuer distributing a preliminary prospectus to investors, the registration statement is amended to include all financial information required by Regulation S-X at the date of the amendment.