The “Secret” IPO: Confidential filings under the JOBS Act

Corporate Attorney Hillary PetersonBy: Hillary Peterson

On September 12, 2013 Twitter announced (appropriately, in a tweet) that it had “confidentially” submitted an S-1 to the Securities and Exchange Commission (the “SEC”) in connection with a planned Initial Public Offering (“IPO”). In the immediate aftermath of the announcement, there was significant confusion as to what a confidential filing meant and how it differed from the traditional IPO filing process.

One of the goals of the Jumpstart Our Business Startups Act (commonly known as the “JOBS Act”) was to ease the burden on smaller, growing companies who wish to raise money from the public. One way in which this goal is achieved is by allowing these “emerging growth companies,” defined under the JOBS Act as a company with total gross revenue of less than $1 billion during the most recent fiscal year, to negotiate confidentially with the SEC over the substance of their S-1 filing, away from the public spotlight. Once the negotiation and drafting process is complete, a company’s final S-1 must be made available to the public 21 days before the road show commences and the company begins speaking to investors.

There are a number of benefits for a company which files confidentially with the SEC. Perhaps most significantly, confidential filing allows a company greater control over the timing of disclosure of its intention to go public. Through the confidential filing process, companies are able to test the waters and receive feedback from the SEC without having to publicly disclose essential information related to the company’s financials and other corporate information. Similarly, in the event that a company chooses not to move forward with the IPO process, filing confidentially shields that company from the damage to its reputation that would result from an abandoned offering.

According to one study, in the first year of the JOBS Act, 65% of companies that eventually filed a public registration statement had previously submitted a confidential statement with the SEC. While Twitter may be the most high-profile company yet to avail itself of the new process of confidential filing, every indication is that many companies will continue to use confidential filings as a way to begin the IPO process.

For more information on this topic, please feel free to contact Hillary.

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