Judging the JOBS Act after one year: What do the numbers really say?
There have been a number of good pieces written on the occasion of the one-year anniversary of the JOBS Act, and one of the the best of the bunch was a Latham & Watkins memo published last Thursday. The memo focuses on Title I, the section of the Act that “significantly changed the IPO playbook” by creating a new designation of filer called the Emerging Growth Company. It is a tour de force of research, number crunching, and insights.
One of the more arresting of these insights is the final item of Latham’s “Top Ten Lessons Learned in the First Year” of the Act: “The pipeline for EGC IPOs remains robust.” This assertion might prompt a double take, for it runs contrary to what many so pundits have been saying lately. A recent Wall Street Journal piece tellingly entitled “JOBS Act Sputters on IPOs” is a case in point. The article cites a number of recent studies, including one by University of Florida professor Jay Ritter that shows a general downturn in the IPO market since the JOBS Act was passed.
So who is right?
One of the nice things about having easy access to the primary data is that you don’t have to rely on the experts; you can reach your own conclusion. On Knowledge Mosaic, we can use search filters on both IPOs and EGCs to assist us in this investigation.
Here’s what the Knowledge Mosaic data says. Running this search on our SEC Filings page, we can see IPOs (excluding those by registered investment companies) that priced in the 12 months prior to the signing of the JOBS Act, while this search shows us the subsequent 12 months. (Note: Since some filers may have multiple filings, it’s necessary to adjust the results to eliminate any duplicates; we can do so by exporting the results to Excel.) The results: 296 companies priced IPOs in the year immediately preceding the passage of the JOBS Act, and 242 the year after – a drop of about 18%. That number is generally consistent with Ritter’s findings.
On the other hand, our raw numbers for IPOs tend to be higher than what is often reported. For example, a recent article in FoxBusiness cites a figure of 32 IPOs in the first quarter of 2013. Using the search template described above, we come up with 52. Why the discrepancy?
Simply put, there are varying methodologies for defining initial public offerings, with certain types of offerings often excluded. Our approach is (by design) on the inclusive end of the spectrum. In contrast, Ritter’s for one tends to be more exclusive. He describes that methodology in a footnote from his recent study Re-energizing the IPO Market, specifying that his definition of IPOs excludes
closed-end funds, Real Estate Investment Trusts (REITs), Special Purpose Acquisition Companies (SPACs) and other blind-pool offers, oil & gas limited partnerships, American Depositary Receipts (ADRs), unit offerings, penny stocks (IPOs with an offer price below $5 per share), small best efforts offers, bank and S&L IPOs (most of which are conversions of mutual into stock companies), and stocks not listed on Nasdaq or the American or New York Stock Exchanges.
The Knowledge Mosaic IPO filter includes all of these variations.
The takeaway here may be this: that regardless of how you define IPOs, they are down about 20% since the year before. Of course, as the commentators point out, whether this downturn is an indictment of the JOBS Act is another matter.
Back to the Latham & Watkins review. The law firm follows up its “robust pipeline” claim by noting that 65 EGC IPOs are currently “in registration,” not counting any confidential submissions we might not know about. How does that figure stack up against the Knowledge Mosaic data? This time, the discrepancy is even greater. Using the Knowledge Mosaic SEC Filings page, we can identify no fewer than 275 Emerging Growth Companies that are currently “in registration” – that is, EGCs that have begun the IPO process by filing registrations with the SEC, but for which the IPO has not yet been declared effective, priced, or withdrawn.
Again, the discrepancy may be largely attributable to differing methodologies. In addition to our possibly broader definition of an initial public offering, we may be more inclusive than the Latham & Watkins authors in what companies we tag as EGCs. We look for any self-declaration of EGC status, regardless of whether it came in an IPO filing (many don’t).
Be that as it may, if 65 is robust, then 275 must be positively brimming. We’ll continue to keep an eye on these numbers as the JOBS Act enters its second year as the law of the land.