Only 14 percent of capital markets executives at leading investment banks believe the JOBS Act is having a positive impact on increasing the number of IPOs on U.S. exchanges, according to a new survey by BDO USA.
The Jumpstart Our Businesses Act, or JOBS Act, was signed into law last year with the promise of providing easier access to capital for startup businesses by easing some auditing and investor protection requirements and regulations (see Obama Signs JOBS Act for Small Businesses into Law). However, a 58 percent majority of the 101 capital markets executives who responded to the telephone survey conducted by Market Measurement Inc. on behalf of BDO USA said the law is not positively affecting IPOs, however, while 28 percent believe it is still too early to evaluate the impact. Of those who don’t believe it has had a positive impact or have yet to decide, 68 percent predict the law will never achieve its desired goal of increasing the number of businesses going public.
These latest findings represent a precipitous drop in the JOBS Act’s perceived effectiveness from a year ago when a majority of 55 percent of the capital markets executives and investment bankers polled said they believed the JOBS Act would have a positive impact on U.S. IPO activity. Yet, by last winter, only 29 percent of the capital markets community believed the new law had been effective in increasing the number of IPOs on U.S. exchanges and now that percentage has dropped even further.
Despite the overall negative perception of the JOBS Act’s impact, a 56 percent majority of the bankers indicate the law’s confidential filing provision has been a positive for businesses seeking to evaluate a possible offering.
“When it comes to the JOBS Act, first impressions were certainly deceiving for the capital markets community,” said Wendy Hambleton, a partner in the Capital Markets Practice at BDO USA, in a statement. “When the new law was introduced last year, bankers viewed it as an engine for more IPOs from emerging businesses, but in practice the law has fallen far short of those lofty expectations. Despite its continuing fall in popularity, it still may be too early to cast a final verdict on the JOBS Act. According to reports, approximately 200 businesses have taken advantage of the law’s confidential filing provision. If a strong majority of these confidential filers actually follow through with an offering, the perception of the JOBS Act among I-bankers could again change drastically.”
The report also found that 68 percent of the investment bankers’ clients that have used the JOBS Act's confidential filing provisions have revenues below $200 million. Fifteen percent of the confidential filers fell between $200 million and $399 million and 11 percent were between $400 million and $599 million. Just 6 percent had revenues of $600 million to $1 billion.
When asked which provision of the JOBS Act has been most heavily utilized, excluding the confidential filing provision, 40 percent of the survey respondents cited the ability to provide only two years of financials in the registration statement, 25 percent cited the delayed compliance with public company accounting standards and 24 percent cited the five-year SOX exemption as the other provisions. A much smaller proportion of 9 percent cited the ability to postpone disclosure of executive compensation.
Under the JOBS Act, startup businesses are allowed to raise up to $1 million per year from a wide pool of smaller investors through the Internet, while remaining exempt from the standard SEC registration process. While this “crowdfunding” provision would seem to enable businesses to postpone going public, only 19 percent of the capital markets executives polled said they are concerned that crowdfunding will negatively impact IPOs.
When asked whether they are more or less likely to take a business public that has previously utilized crowdfunding to raise private financing, a 51 percent majority of the investment bankers polled said that previous crowdfunding would have no impact on their decision. The remainder of the respondents were almost evenly split among those who were more likely (25 percent) to work with a crowdfunding company and those who were less likely (23 percent).