Public appeal

The market for IPOs is coming back.

Laura Holm, a partner with Quarles & Brady law firm in Naples, recently helped a small Texas biotech firm raise $76 million in a public stock offering. “It's easier for companies to go public now because of the Jobs Act,” she says.

Entrepreneurs who might never have considered selling stock to the public may now reconsider an initial public offering. “I've done over 10 IPOs in the last few years,” says Holm, a corporate attorney who also handles private transactions.

Despite the public glare, Holm says entrepreneurs are warming to IPOs. “Some companies like the exposure and the liquidity,” she says.

The market for IPOs by smaller companies slowed after 2002 when the federal government imposed onerous reporting requirements as part of the Sarbanes-Oxley Act. Once a source of capital for fast-growing companies, the bureaucratic requirements of managing a public company made it costly and burdensome for all but the largest corporations.

But in 2012, Congress passed the Jobs Act that relieved companies with less than $1 billion in annual gross revenues of certain disclosures when selling stock to the public. For example, small emerging growth companies can file for an IPO confidentially to test whether their shares might fetch a higher price in the public market. “They're trying to be more investor-friendly,” Holm says.

That's important because owners of privately held companies don't want all their finances to become public if they ultimately decide not to proceed with the public sale of stock. “Do you want people to know all the material things about your business? If you change your mind, no one knows,” Holm says.

Winning approval for an IPO from the Securities and Exchange Commission may not be as grueling or take as long as negotiating a private transaction. “It can take three months, if they have audited statements and you don't get a lot of SEC comments,” Holm says. “It's not as difficult as it was a few years ago.”

Companies with less than $1 billion in annual gross revenues aren't required to file as much financial information or provide as much detail on internal controls as their larger cousins, for example. Those were big concerns during the tech bust in the early 2000s. “Now, everyone's calmed down,” Holm says.

For their part, regulators are accommodating. “The SEC is flexible. They respond quickly,” Holm says.

That's important because certain industries may quickly fall out of favor with stock investors. For example, currently the biotech sector is hot: the Nasdaq Biotechnology Index has risen more than 500% since March 2009, Bloomberg recently reported. But that could change if investors sour on the sector.

Technology companies aren't the only firms getting investor attention. Holm says restaurant companies are attractive IPO candidates, for example. “The big issue is timing,” she says. “You don't want to miss the window for high valuation.”

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