The JOBS Act Epic Fail
According to a recent survey by BDO USA only 29% now believe the JOBS Act will work, a considerable drop from 55% that believed this last June.
Even worse, 42% of the bankers surveyed said they see no evidence the new law was helping businesses to go public. Renaissance Capital thinks that the aspect of the law that allows for confidential filing has reduced visibility into the IPO pipeline and that is why the IPO market looks dim.
According to the SEC, more than 100 companies filed under the confidential process in 2012. Confidential filing was to allow companies to test the waters before jumping in all the way -- presumably to create a stronger offering. It could be that the confidential filing has actually hurt the process.
Eighty percent of the investment bankers surveyed by BDO said the lack of transparency hurt their ability to advise clients on offering. The confidentiality is scaring away potential investors. Nearly half (48%) said investors preferred to wait until a company made a public commitment to the offering.
James Krapfel of Morningstar disagrees.
"I think the JOBS Act has been incrementally positive for qualifying companies -- namely those with under $1 billion in annual revenue," he said. "The ability to disclose less and disclose later allows companies to save money and keep information private for longer, which can tilt the value proposition in favor of going public sooner."
However, the current pipeline of 117 companies is down from last year's 146 companies, making it certainly look like the IPO market is languishing. John Fitzgibbon of IPO Scoop.com argues, "That's because there is no more pipeline."
"What the JOBs Act has done," Fitzgibbon said, "is shuffle the deck for the IPO market. With the old way you file, you pay fees etc, and expose everything. Now you can go public with three weeks' notice. There is no visible pipeline."
Krapfel thinks the market is at fault, not the JOBS Act.
"Equity market performance and volatility are the primary drivers for IPO activity, and concerns about the fiscal cliff constrained the number of companies going public in the back half of 2012," Krapfel said. "The worst of the fiscal cliff fears are behind us, along with a strong start to the equity markets in 2013, suggests that IPO activity should be strong through at least the first quarter."
Seven offerings have been priced so far in January 2013 and the results are mixed with three down and four up. The total return from the issue price for the group though is 11.61% according to IPO Scoop.com. Last January, 17 companies went public.