Last December the US Government passed the Fixing America’s Surface Transportation Act or FAST Act……um, wait, isn’t this an SEC Reporting Blog? Well, as frequently happens when a “must pass” bill is in the legislative process congress members and senators add many amendments that are unrelated to the original bill. One of those ride-along areas in the FAST Act turns out to be SEC reporting related.
Several of the provisions relate to Emerging Growth Companies and their path through the IPO process. Others relate to disclosure effectiveness and improving the reporting system. Check the last section of this post and you can read a summary of these legislative changes.
Congress tinkering with the IPO process raises the question, just what is the state of the IPO market?
One great resource that provides a weekly update about the IPO market with details by industry and other factors is PWC’s weekly newsletter “Capital Markets Watch”. You can find the current and past issues at:
www.pwc.com/us/en/deals/publications/ipo-watch-weekly.html
The IPO market here in the US was fairly strong last year. That said, uncertainty and market volatility have a strong impact on IPO demand and given this year’s start in the capital markets it is difficult to predict how IPO’s will fare this year. One thing for sure, it will be interesting to watch!
One of the things you learn as you watch the ebb and flow of IPO’s is that there is a clear seasonal pattern in this market, which companies should allow for in their planning. Fall is usually a strong period in this market. Which means it is important to begin the process early in the year.
If you are in the process of considering an IPO, PLI has a wealth of resources. Our treatise “Initial Public Offerings: A Practical Guide to Going Public” will help you build a thorough understanding of the process. You can learn about it at:
Our full-day conference “Securities Offerings 2016: A Public Offering: How It Is Done”, which will be on March 11 this year, is a good deep-dive into the process. The program will be presented live in New York and is available via webcast also. You can learn all about the program at:
Lastly, here is a brief summary of the major SEC related provisions of the FAST Act.
This Act:
Updates certain provisions of the Jumpstart Our Business Startups Act (JOBS Act), and
Requires the SEC to review and update certain SEC reporting requirements.
The Act’s goal is to make capital raising by smaller companies easier. Some of the changes are self implementing and will take effect immediately, others will require SEC rulemaking.
Under the original provisions of the JOBS Act a company could lose EGC status during the IPO process. This would happen for example if revenues exceeded $1 billion before the effective date of a registration statement. The FAST Act allows a company in the IPO process to “lock in” its EGC status. This status will last for up to one year after the company fails to qualify as an EGC. In this case a company will be treated as an EGC through its IPO date, or one year after it ceases to meet the EGC criteria, whichever is earlier. This provision is effective immediately.
The original provisions of the JOBS Act require that all confidential submissions be made public at least 21 days before marketing the company’s stock. The FAST Act changes this to 15 days before marketing, or effectiveness if there isn’t a road show. (Typically marketing begins with the road show.) This provision is effective immediately.
Under the FAST Act an EGC may omit financial information from a confidential submission or public filing if the company reasonably believes that it will not be required under the rules when the registration statement is declared effective. For example, prior year F/S would not be required if a company believes they will not be required when the registration statement is declared effective. This could be true for certain interim information also. The SEC has already considered extending this provision to all companies.
The Act also requires the SEC to amend its rules to allow a summary page in Form 10-K. Each item should include a cross-reference to where the relevant information is included in the annual report. This may be a hyperlink. While the SEC is required to do this within 180 days a company could actually do this now.
The Act also requires the SEC to review and amend Regulation S-K to provide additional scaling or eliminate requirements for accelerated filers, EGCs, SRCs and other smaller issuers to reduce reporting burdens while still providing all material information to investors. This review is also designed to remove redundant, outdated or unnecessary disclosures for all issuers. The SEC is required to do this within 180 days
The Act requires a second S-K study to be done in conjunction with the SEC’s:
Investor Advisory Committee and
Advisory Committee on Small and Emerging Companies
The focus of this review is to:
Modernize and simplify requirements
Reduce costs and burdens
Still provide all material information to investors
This review should:
Emphasize a “company-by-company” disclosure model
Reduce boilerplate language
Maintain completeness
Provide for comparability across companies
Evaluate methods of information delivery and presentation
Explore methods for reducing repetition and the disclosure of immaterial information
The SEC must complete the study and issue a report to Congress including detailed recommendations with 360 days and then propose rules 360 days after the first study is issued.
The FAST Also includes a new exemption for private companies, Section 4(a)(7) of the Securities Act, which will provide for private re-sales of restricted securities. Purchasers will have to be accredited investors and general solicitation and advertising will not be permitted.
The FAST Act also provides for forward incorporation in Forms S-1 and F-1 by smaller reporting companies. This will obviate the need to file prospectus supplements or post-effective amendments.
Savings & loan holding companies now have the same registration thresholds as banks and bank holding companies.
The SEC has already update some JOBS Act FAQs and has even discussed broadening some of the provisions.
There is a lot here, and if you would like to learn more about the FAST Act we have a recorded program with details at:
As always, your thoughts and questions are welcome!