Some of the more notable companies to go down the confidential IPO filing route include Airbnb (NASDAQ: ABNB), Slack, and Uber. While there are many advantages to a confidential filing, there are still some downsides that need to be considered.
The initial introduction of a confidential IPO came back in 2012 as a result of the Jumpstart Our Business Startups (JOBS) Act. The goal was to provide more support to small companies that are looking to go public.
Initially, if a firm had revenue of no more than $1 billion, they were able to confidentially file an S-1 form with the SEC. This paperwork would only become publicly available 15 days in advance of the offering taking place. Since June 2017, companies of all sizes have been able to confidentially file for an IPO.
A major advantage of a confidential IPO is that companies can keep sensitive information under wraps for a longer period of time. This means that competitors will have to wait before getting detailed insights into the operations of the company that is considering going public. The company might not end up going ahead with a public offering and it doesn't want its competition knowing the exact details of future plans.
Companies have a lot more flexibility when going down the confidential route as they do not have to set a date in stone or even go ahead with a public offering at all. With a normal IPO, once a date has been set, it is hard to put a stop to it. When committing to a public offering so far ahead of time, a company can also open itself up to significant stock market volatility that might negatively impact its offering.
A company can look to have an IPO without stirring up tons of scrutiny from the media. IPOs garner a lot of attention from the media and any hiccoughs or delays can lead to negative market commentary and paint a bad impression.
Companies will be able to get ready for a public offering at their own speed, with a confidential filing giving them a good head-start without rushing the process. The 15-day period also gives potential investors sufficient time to analyze the financials.
Finally, this IPO strategy helps a company get all of its ducks in a row to get approval for its accounting methods from the SEC. If changes are necessary, these can be done away from the public eye.
A confidential IPO filing can be more expensive than a traditional offering. Accounting and legal expenses can quickly mount up if the planned public offering date keeps getting pushed back, as filings have to be kept up to date each quarter. The shorter public time period also limits the time potential investors can spend conducting advanced research into the company.
The 15-day window between the public filing and the IPO can put a strain on employees as they scramble to figure out how the public offering will affect their own financial situation. They may need to take prompt action by exercising vested options, creating a relationship with a broker, or seeing what the most tax-efficient strategy will be for their shares.
Finally, a traditional IPO process can be a good form of advertising and generate plenty of buzz leading up to the offering, rather than curtailing public attention to just 15 days.
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