Why Confidential Filings are the New Normal for IPOs

Securities and corporate finance co-chair Jeffrey Vetter is quoted in the Silicon Valley Business Journal article “Why Twitter’s secret IPO process is the new normal” on Twitter’s confidential filing under the Jumpstart Our Business Startups Act, or JOBS Act.

Vetter, who says he’s worked on about 16 confidential initial public offerings since the law went into effect, tells the Business Journal that because confidential filing allows companies to keep confidential information under wraps, he expects confidential filing to replace the old system.

“Before, in the worst-case scenario, you could file and then have your company’s information out there in public for the entire time you were waiting for the market to look good for you to go public," he said. "We’re talking three years in some cases. It hurts your business because your customers start to think there’s something wrong because you haven’t gone public yet, and it gives your competitors a lot of data about your operations that you probably don’t want them to have.”

Vetter says companies filing publicly will likely be those seeking publicity around an IPO whether for marketing purposes or as part of a “dual tracking” effort, getting ready for an IPO while also shopping the company around to potential buyers. He notes that over the past year many of the companies who chose not to file confidentially were life sciences companies, where historically dual tracking has been common.

Nevertheless, Vetter tells the Business Journal that the JOBS Act has not encouraged more companies to go public than already would have done so.

“The issue is, it’s still a lot of work and a lot of expense even to do a confidential filing,” he said. “You have audited financials, due diligence, you still need outside counsel. It’s not any cheaper necessarily. So most of the companies I’ve worked with that have chosen that route are companies I’d say would have probably gone public anyway.”