2019 was a busy year for initial public offerings, or IPOs, with more than 150 companies going public. Among those was Beyond Meat, which had the biggest “pop” for an IPO since the internet bubble.
This year is looking to be a busy one for the IPO market as…
well with the upcoming election cycle and growing fears of an impending market slowdown. Companies that didn’t file in 2019, such as Airbnb and Postmates, are eyeing the first half of 2020 to enter the public markets.
While these companies will likely make a splash in the public markets this year, the way they do so may be somewhat different. Specifically, companies may take advantage of the confidential IPO. The confidential IPO, which is still relatively new, can offer several advantages to companies that are about to go public. As we are in the early days of this new decade, it will be fascinating to see whether these startups will leverage the confidential IPO as they get ready for life as a public company.
The confidential IPO can trace its origins to April 5, 2012. On that day, President Barack Obama signed into law the Jumpstart Our Business Startups Act, or JOBS Act. The JOBS Act, which defined startups as emerging businesses with less than $1 billion in annual revenue, let these companies file their S-1 IPO paperwork confidentially. In June 2017, however, that $1 billion cap was lifted, allowing all companies to leverage the confidential IPO when attempting to go public.
Ultimately, the confidential IPO can be valuable for several reasons. Most notably, it provides a public relations reprieve limiting the amount of time in which investors and the government can scrutinize the filing. This benefit may seem slight, but it can provide tangible value to these startups.
Timing is of huge consideration as well. Pinning down a date to go public is a moving target at best. With a confidential IPO, a company can move the date and file when it is most advantageous, providing more flexibility to maximize value for its employees and earlier investors. As just one example, Airbnb, which stated that it intends to become a publicly traded company in 2020, can use this provision to go public at the most opportune time.
Confidential IPOs In Action
By now, many are familiar with the 2018 and ’19 confidential filings of transportation pioneers Lyft and Uber, and social media icon Pinterest. There will undoubtedly be more big names in 2020.
As just one example, grocery giant Albertsons will likely go public this year, according to The Wall Street Journal. Sources indicated that Albertsons has been updating IPO documents that were confidentially filed with the Securities and Exchange Commission. Once Albertsons decides the time is right, the company will likely be valued at around $19 billion.
The confidential IPO isn’t just an American phenomenon. My firm has a fair number of private equity-backed software clients filing in international markets, such as Australia and Japan. While international markets have entirely different IPO processes and requirements, confidentiality remains paramount.
Essentially, the confidential IPO gives more power to companies as they prepare to go public. They can avoid being victims of a capricious market and can file on their own terms. They are also able to keep leaks to a minimum and reduce media scrutiny as they are preparing to go public.
And while some companies may want to leverage intentional publicity to build excitement for their IPO, even those going the confidential route might not…
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