In late May, the SEC stated that companies submitting confidential filings for a US IPO have outpaced companies that have filed IPOs publicly. Given the low volume of public filings since June 1, it is almost certain that the trend has continued. In the four months since the JOBS bill was signed, filings have totaled 37, or less than 10 filings per month. That is down 41% from the first quarter of 2012 (17 per month) and over 70% from the same period last year (31 per month).
IPO Filings by Month
| 2011 | 2012 | % Change | |
|---|---|---|---|
| January | 13 | 17 | 31% |
| February | 14 | 16 | 14% |
| March | 24 | 18 | -25% |
| April | 36 | 8 | -78% |
| May | 33 | 11 | -67% |
| June | 23 | 8 | -65% |
| July | 34 | 10 | -71% |
| Total (Apr-July) Avg (Apr-July) |
126 31.5 |
37 9.3 |
-71% |
The $1 billion benchmark
The JOBS Act is intended to help more small companies reach the public markets by reducing disclosure requirements and moderating the cost burden. However, the 134-year soccer franchise Manchester United (MANU), an "emerging growth company" per the JOBS Act, shows us that investors can expect many private companies with less than $1 billion in revenue (over 90% of all US IPOs historically) to utilize the JOBS Act's reduced disclosure and cost benefits regardless how seasoned their business may be.
What is the big secret?
While confidential filers are suppose to be...well, confidential, a small number of them have actually publicized their filings or media has caught word about their confidential submission. This has generated some level of visibility into the confidential backlog which we speculate could now exceed 50-60 companies. Some notable confidential filers include Trulia, which operates an online residential real estate site, MGM Holdings, the parent company of Hollywood movie studio Metro-Goldwyn-Mayer, and SaaS-based enterprise solutions company Workday. On Monday, the first known Chinese company, 7Road.com, a spinoff of Chinese online game operator, Changyou.com, reportedly filed confidentially.
Proliferation of private funding
Another likely driver of the public filing decline is the increased access to capital for private companies. Companies are not necessarily staying private longer, but the secondary market and accessibility to private financing has flourished as demand for secular growth-driven companies has caused more investors to buy in pre-IPO. We currently have 30 companies in our private company backlog with estimated valuations at or above $1 billion and median funding close to $300 million.
A new normal for the IPO pipeline
While it is too early to speculate on the lasting impact of the JOBS Act on the IPO market (many aspects of the Bill and its enforcement are still unknown), the decline in "public" filings is not nearly as severe as the numbers imply. While there has been a meaningful decline in the official IPO backlog, which has shrunk from over 200 companies at the start of 2012 to 143 companies as of August 6, 2012, the new confidential filing dynamic distorts the size of the IPO backlog.
Ultimately, it appears as though the JOBS Act will create a new normal, where the "shadow" pipeline of confidential filings is as big as or larger than the publicly disclosed backlog. Once the full impact of the confidential filing process cycles through (April 2013), we should have a new basis for the size of the IPO pipeline.
