JOBS Act: The IPO Market, Before and After

Christine Jacobs, CEO of Theragenics (TGX; NYSE), enlightened OneMedForum NY 2012 attendees on a categorical operational observation: while the number of employees represent a fair barometer of her company’s success, they also define her compliance costs.

According to Jacobs, Theragenics’ financial compliance cost on average, is $8,000 per employee — and that was before Dodd-Frank was passed in 2009.

These daunting costs (not to mention those later created by the Dodd–Frank Wall Street Reform and Consumer Protection Act) were enough to concern Jacobs that she  decided to write a letter to the Securities and Exchange Commission summing up to Chairman Mary Schapiro how the costs were affecting her business in a short but succinct statement:

“You’re Killin’ Us.”

Much to the chagrin of her CFO and counsel, she sent the letter to the SEC. With tension rising between government, the public and business in light of the most sweeping financial reform since the Great Depression, this was certainly risky. After a year and a half Theragenics got a call, directed to Christine Jacobs.  It was the SEC.

They came calling not to pick a fight, but rather seeking her cooperation in properly defining the SEC guidelines of the JOBS Act, the most important financial legislation since the Great Depression. It seems the SEC had realized the logistics of compliance – and more importantly over-compliance – had become perhaps the biggest road block in raising capital.

Beyond the theoretical of macroeconomics, however, the SEC needed to understand how the JOBS Act actually affect businesses, especially smaller companies and their capital markets activities. To help answer these questions, the SEC formulated the SEC Advisory Committee on Small and Emerging Companies, and named Jacobs the co-Chair.

Jacobs believes the passing of the JOBS Act, and its increase of the Regulation A registration exemption limit, will do something for companies to raise capital — but results and quantitative methods of measuring those results will take time to develop.

“What it will do is provide a financial on-ramp for companies seeking capital,” Jacobs said.

Still, Jacobs does believe that the discrepancy between existing public companies and new companies may become a problem, as the JOBS Act does not sufficiently address the differences between the two camps. Further, any sort of classification of exemptions and differentiations, especially when it comes to major topics as corporate governance with Dodd-Frank or the new Regulation A exemptions, do not exist between the two.

That compliance discrepancy can be tiresome and costly, and it has become a potential headache in the American business landscape, which the JOBS Act may not immediately solve. Parties involved have demonstrated time and time again in the past that they cannot stomach the timetable and potential for negative results in the future (hint: “maximize shareholder value”). The laborious process of setting compliance guidelines for JOBS Act stipulations thus may be regarded as yet one more failure to address the business regulatory landscape effectively.

There is also a flip side, however, to a proper SEC ‘audit’ of the JOBS Act: this legislation may foster an economic boom by ultimately providing companies with a better way to seek capital for their growth by simplifying the process; strengthening stability with protections to effectively regulate; and easing the road for companies to participate in public or private transactions, a backbone of what may be a potential avenue to an American economic recovery.

With the ushering in of the JOBS Act, investors, regulators and smaller companies can potentially match the complexities of today’s financial markets with supportive regulation that allows for new and better ways for companies to access the capital that they require.

David Weild, Special Advisor to Grant Thornton and former NASDAQ Vice Chairman, was a keynote speaker of OneMedForum NY 2012, a conference held in New York on July 11-12th. Weild’s analysis and lobbying has been crucial in drafting the JOBS Act legislation, and ultimately pushing it through Congress.

Weild spoke of a “monumental shift in the markets for IPOs” that has taken place over the past 20 years,  which the JOBS Act addresses in the form of necessary structural reform.  As one short-term advantage, Weild noted the suspension of the previous Reg A exception limit of $5 million that requires companies to file additional information with the SEC – the cost of which is about $300,000 , not to mention additional costs in investment banking fees.

Weild also noted the support capital markets have given for the JOBS Act, as these entities have a vested interest in how the microcap companies raise capital. He has said that the bigger stock exchanges have been paying particular attention to how smaller companies plot their course to go public. Bigger exchanges such as the NYSE or the NASDAQ may have trouble remaining competitive in the IPO space if the groundwork for reaching those levels become too risky or costly. Instead, the JOBS Act provides support ventures for small companies to obtain the necessary resources to reach these levels of growth, but also to keep them alive until they get there.

The issue of fostering company growth in a moribund IPO market is a top priority for asset managers, as well.  According to Weild, Invesco’s admission that access to smaller microcap companies for their nearly $650 billion asset management portfolio is essential, signified that institutional investors’ appetite for such investment is voracious. So voracious that sufficient time, attention and resources must be given to such an underrepresented sector, and more importantly that the corresponding regulatory and structural constraints should be in place too to protect it.

This may reflect a trend of shifting away from risky trading and exotic derivatives to more traditional, asset or value based investment, and a desire to have a more tangible result with invested capital. It is also endemic that both Wall Street and Washington found common ground concerning the financing of smaller companies as a whole, and the future of Reg A’s impact on the American capital markets landscape.

Still, while Jacobs lauds regulators for their outreach to companies to get a better handle on how their legislation will evolve in the real world, she does note that there is still the need for a better way for companies such as her own to meet compliance in a cost effective way.  She argues that streamlining the structure of the legislation for different types of companies is necessary, as every company out there is not the same and cannot be expected to be treated one and the same.

“We can’t do it all, and we can’t be asked to do it”, Jacobs said, reflecting on her own company’s situation.


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