SEC Expands Confidential Filing to All IPOs

Shriram Bhashyam
Jul 6th, 2017
Starting July 10, 2017, all companies seeking an IPO, whether or not they qualify as emerging growth companies (“EGCs”), will be permitted to file their draft IPO registration statements confidentially. This is an important development, as it may lead to more IPOs and is a signal of tone shift at the SEC towards capital formation.

The confidential submission process is an accommodation by the SEC in the offering process designed to encourage smaller companies to go public. Provided in the JOBS Act, this accommodation has been available only to EGCs. An EGC is an issuer that has total gross revenues of less than $1 billion during its most recent fiscal year. The confidential filling process has been well-received by markets, with 88% of EGCs that have filed for IPO since the enactment of the JOBS Act taking advantage of this provision, according to Ernst & Young.

To avail itself of the confidential submission process, an issuer must confirm that it will publicly file its registration statement, along with any confidentially filed drafts, at least 15 days prior to its road show or otherwise before the requested effective date of the registration statement. For non-EGC issuers, pursuing an IPO, the SEC will confidentially review an initial draft registration statement and related revisions. For non-EGC issuers pursuing a follow-on offering within 12 months of IPO, the SEC’s confidential review will be limited to the initial submission, and responses to SEC comments must be done via public filing and not with a revised, confidential draft registration statement.

The announcement by the SEC regarding the expansion of confidential submission also provides additional flexibility relating to financial statements for non-EGC issuers. Similar to relief provided to EGCs under the JOBS Act, a confidential submission may omit financial information that the issuer reasonably believes will not be required at the time the registration is publicly filed. Further, the SEC explicitly reminded issuers that it will consider requests for waivers of certain financial information. Additionally, the SEC noted that it would consider reasonable requests to expedite review of a confidential submission.

With the expansion of the confidential submission process, the SEC is encouraging more and larger companies to go public. Confidential submissions give an issuer greater control over its IPO process and timing. The issuer can get a peek into areas of concern for the SEC without having to share their performance, strategies, or intentions with the world (and their competitors). Based on public reports, a few mega-unicorns, such as Uber, Airbnb, and Palantir Technologies would not qualify as EGCs, as their revenues are greater than $1 billion. The availability of confidential submissions may nudge them to explore an IPO sooner. Further, this announcement signals an anticipated tone shift at the SEC under new Chairman Jay Clayton. The SEC will emphasize capital formation and making the US capital markets more competitive. We can expect to see further reforms towards these ends from the SEC.

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Many thanks to Jacob Gerber for his assistance in drafting this blog post. The SEC's announcement included items beyond the scope of this post, such as provisions for foreign private issuers. The SEC announcement is available in its entirety here.
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