Securities and Capital Markets attorney Alexander R. McClean spoke with Dan Novak from the National Law Journal about the new SEC guidelines allowing all registrants to confidentially file registration statements, even if the registrant has been a reporting company for more than 12 months. McClean addresses why this development could significantly impact capital raising strategies for smaller public companies.
“The SEC places some limits on smaller public companies in raising capital. If a company wishes to introduce a secondary offering, it can submit to the SEC a form S-3, or shelf registration statement. But the company cannot sell more than one-third of its public float in any 12-month period, which may be too short a timeframe to meet a firm’s capital needs.
A company could also submit an S-1 form, but that requires public disclosure and could tip the market and make it very difficult for smaller companies to raise capital for new offerings. It was very common that companies [filing the S-1] might lose 30 to 40 percent of their market cap before they could actually get to a place where they need to do that offering because everyone would short the stock because they would know that an offering was forthcoming, Expanding draft registration statements levels the playing field for small companies with less revenue to support the costs of going public,” McClean went on to say, “Small public companies are at a marked disadvantage with larger public companies in many ways,” he said. “They couldn’t even raise capital like a large company could because there were limitations placed upon them by the SEC. So this change kind of puts them more on equal footing with larger companies.”
To read the full article on the National Law Journal‘s website, click here.