Normally my inbox fills up with news about companies filing IPOs and getting ready to go public. So it caught my surprise when I noticed that there seems to be more announcements of IPO withdrawals than anything else.
So far this month 10 companies have withdrawn their IPOs. (For the record, they are Alon Brands, Cantor Entertainment Technology, China Auto Rental, Community Choice Financial, Customers Bancorp, CyOptics, First ULB Corp., New Source Energy, TVAX Biomedical, and Union Agriculture.) These nine shelved IPOs are more than any other month this year.
But perhaps this isn’t a harbinger of terrible things to come. It’s just that IPO filings and pricings have slacked off this month, and so the withdrawals appear more prominent. According to Hoover’s Build A List, 10 companies have filed to go public in May, whereas 30 filed during the month last year. Eleven companies actually went public this month, while 19 priced last May.
While most cited the usual — unfavorable market conditions — there’s another factor at play here. The Jumpstart Our Business Startups Act, or JOBS Act, passed last month. The new law allows companies that earn less than $1 billion to be considered “emerging growth companies.” (It’s a high ceiling, I know.) And as “emerging” companies, these firms are now exempt from hiring an outside auditor, among other regulatory easements. While the JOBS Acts was praised for making it easier for smaller companies to go public, critics say it just might open the door to fraud, which is what the compliance regulations established by the Sarbanes-Oxley Act set out to prevent from happening. (Sarbanes-Oxley was enacted 10 years ago after the Enron, Tyco, and WorldCom scandals.)
So some of these companies might be withdrawing their IPOs in order to re-file under the new, easier regulations. In fact, Cantor Entertainment Technology did just that. The company, which supplies mobile gaming systems to a handful of Las Vegas casinos, withdrew on Friday, stating it plans to re-file under the new “confidential submission process,” which allows a company to file a draft registration statement for confidential, non-public review. (So folks like me can’t get a sneak peak.) Then, three weeks before the company launches its investor road show, it’ll post the paperwork on the SEC’s website.
We’ll see how many companies choose to hold off on their IPOs until 2013, when the JOBS Act becomes effective.