SEC Allows All Companies to Submit Confidential Initial Registration Statements

Capital Markets Alert | July.07.2017

On June 29, 2017, the SEC announced that starting on July 10, 2017 all companies can take advantage of confidential SEC review of certain registration statements submitted in connection with an IPO.  Confidential SEC review allows companies to protect sensitive information and manage the IPO process without initial public scrutiny.  Previously, only emerging growth companies (EGCs—which, generally, are companies whose total annual gross revenues were less than $1 billion for the last completed fiscal year) could use the confidential SEC review process for IPOs.  The SEC's new policy is aimed at promoting capital formation. 

What Companies Can Do Now:

Starting on July 10, 2017, the SEC's new procedures allow for the following:

  1. Securities Act IPOs.  Any company can use the confidential review process for an IPO as long as the company confirms in a cover letter that it will file publicly the registration statement and related confidential draft submissions at least 15 days prior to any road show or requested effective date.
  2.  Exchange Act Registration Statement.  Similarly, any company can use the confidential review process to list initially its securities on an exchange as long as the company confirms in a cover letter that it will file publicly the registration statement and related confidential draft submissions at least 15 days prior to the anticipated effective date of the registration statement for listing its securities on an exchange.  Companies normally use Exchange Act registration statements for spin-offs and direct listing on an exchange. 
  3. 12-Month Confidentiality Period for Follow-on Offerings.  After a company has used the confidential review process for a Securities Act IPO or an Exchange Act registration statement, a company may continue to use the confidential review process for follow-on offerings.  The confidential review process is available during the 12-month period following the effectiveness of the initial confidential registration statement as long as the company confirms in a cover letter that it will file publicly the follow-on registration statement and related confidential draft submissions at least 48 hours prior to the requested effectiveness of the follow-on registration statement.  However, the confidential review under these circumstances is only available if the SEC has no comments on the follow-on registration statement.  If the SEC has comments on the follow-on registration statement, the amended registration statement should be filed publicly.
  4. Foreign Private Issuers and EGCs.  A foreign private issuer (FPI) may use these new SEC procedures or the confidential review process applicable to EGCs, if the FPI qualifies as an EGC, or follow the SEC's guidance issued on May 30, 2012.  Further, EGCs may continue to use the confidential review process set out in the JOBS Act of 2012.
  5. Expedited SEC Review and Reduced Required Financial Statements.  The SEC will consider reasonable requests to expedite the review of the confidential registration statements, and the SEC encourages companies to discuss their transaction timelines with the staff reviewing the filing.  Further, consistent with the FAST Act of 2016, the SEC will not require under the new procedures financial information in a confidential registration statement that a company reasonably believes will not be required at the time the registration statement is filed publicly.  For example, a company may begin the confidential review process before the end of a fiscal year without financial statements for periods that would not be required once the year-end financial statements are available.  However, a non-EGC company that uses the confidential review process cannot use all of the EGC accommodations.  For instance, a non-EGC company will have to present three years of audited financial statements and provide full-scale executive compensation disclosure. 

The SEC's expansion of the confidential review process for all companies contemplating an IPO is part of a stated effort to help build the IPO pipeline and help newly public companies access the capital markets.  Companies that do not qualify as EGCs should note, however, that not all of the advantages of being an EGC under the JOBS Act apply to them.  For instance, non-EGC companies cannot send testing-the-waters communications to qualified institutional buyers and institutional accredited investors before or after the filing of a registration statement to gauge interest.  However, we believe the expansion of the confidential review process for all companies contemplating an IPO will likely benefit companies backed by private equity sponsors and large "unicorn" companies who exceed the thresholds to qualify as an EGC. 

The SEC's press release relating to confidential review of certain registration statements is available here; the SEC's related more detailed announcement is available here; and the SEC's FAQs relating to the confidential review process is available here.