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The JOBS Act’s “IPO On-Ramp”: What If You’re Already on the Freeway?

June 18, 2012

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The centerpiece of Title I of the JOBS Act, passed into law on April 5, is the provision of a so-called “IPO on-ramp” for “emerging growth companies,” which are exempted from many of the burdens of the initial public offering registration process.  Such companies are even eligible to begin the process confidentially. The idea is to stimulate the economy by offering fledgling companies a relatively easy entry into the IPO thruway.

Pundits have had a fair amount to say about the provision.  Broc Romanek notes that the emerging growth company (“EGC”) label is set to become the newest risk factor category for companies (though he makes a point of disagreeing with the characterization by CFO.com’s Sarah Johnson that such risk will prove a “turn-off” to investors).  Kevin LaCroix cites a recent report that the vast majority of newly public companies will qualify for the EGC label.  Finally, J. Robert Brown speculates that the new rules will have exactly the opposite of the intended effect, actually discouraging IPOs.

Speculation aside, what actually has happened since the provision went into effect?  Using the Knowledge Mosaic SEC Filings page, we can identify IPOs filings submitted by self-declared EGCs.  To do so, we enabled our IPO search filter and included the phrase “emerging growth company.”  We can then take that list of filings and filter it for unique filers.  Here are some raw numbers for the time period April 5 – June 15:

  • New IPO registrations by self-identifying EGCs:  14
  • Total number of self-identifying ECGs making IPO filings: 162
  • ECG IPOs declared effective:  26
  • Withdrawals:  9
  • Foreign private issuers:  15
  • REITs:  6

One of the noteworthy facts here is that many companies are apparently jumping on the ECG bandwagon after having already begun the IPO process.   That includes the venerable Fender Musical Instruments, Inc. (maker of the famous Fender Stratocaster), and restaurant franchiser Chuy’s Holdings, Inc., whose IPO we profiled last summer.

And one of the salient questions raised by that noteworthy fact is whether the IPO On-Ramp provision really is an on-ramp at all.   For if most filers were already on the freeway to begin with, then isn’t it more like, say, an express lane?

You can click here to see the complete list of 162 ECG IPOs.

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