Trends Bode Well for Q2 IPOs

by Ken Urish 11. April 2013 12:13
Normal 0 false false false false EN-US X-NONE X-NONE There were 31 IPOs in the U.S. in Q1 of 2013 vs. 42 in Q1 2012* - statistics that taken alone would indicate a poor start for this year. However, there are positive trends that indicate we could see significant growth in activity for Q2 and beyond in 2013. Although the number of deals was down, IPO proceeds are up 28% vs.Q1 2012. Offerings have averaged $245 million thus far in 2013, an increase of 75% from the average deal size of Q1 2012. Benefiting from the strength of the overall stock market, the average IPO in 2013 has returned almost 18% from its offer price. In addition to the increased proceeds, another positive trend is the breadth of industries represented in offerings thus far this year. Technology companies traditionally lead in bringing offerings to market – they represented almost 30% in 2012. But Q1 of 2013 saw multiple offerings from numerous industries, led by the financial, healthcare, real estate, energy and technology sectors. Even offerings from industrial companies have been well received. Broad industry participation, combined with stock market and other economic indicators, creates a promising outlook for IPO activity for the balance of the year. As Brian Eccleston of the Capital Markets practice of our Alliance partner BDO notes, “the breadth of industries represented among Q1 offerings bodes well for the economy and the U.S. IPO market moving forward.” *Renaissance Capital is the source of this historical data related to the number, size and returns of U.S. IPOs.    
Categories: Advisory

The JOBS Act: Trading IPOs for Blind Spots

by Hiller Hardie 26. April 2012 15:55
The Jumpstart Our Business Startups (JOBS) Act was passed into law on April 5, 2012. It encourages private companies to complete IPO’s by giving them reporting relief if they qualify as an emerging growth company (EGC). EGCs have less than $1 billion in revenue and $700 million in publicly traded stock. A previous blog warned about this legislation eliminating the Sarbanes Oxley requirement of an auditor’s report on a company’s internal control over financial reporting. However, the Act does require management to report on such internal control. Nevertheless, it is now more likely that EGCs will have errors or issues with their financial statements heading into a public offering. This was the case in 2011, when the SEC examined Groupon’s financial statements heading into its November IPO. Groupon had already revised its financials twice before that date because of the SEC’s scrutiny, and is revising them again due to inadequate reserves for customer refunds. This news prompted a sell off and drop in share price from $20 to $15.27. recently conducted a study of companies with SOX issues since 2004, when the SOX requirement for internal control took effect. They identified 104 companies with SOX issues who would have been exempt from auditor scrutiny if the JOBS Act had been in effect at that time. For more information on the JOBS Act see the April 2012 edition of BDO Knows: The Jumpstart Our Business Startups Act.
Categories: Advisory

House Approves Some SOX Relief for Issuers < $1B

by Hiller Hardie 14. March 2012 11:00
  The House recently approved a measure aimed at creating jobs and easing the regulatory burden on smaller businesses.   A major component of this bill exempts small and mid size businesses initiating public offerings from some key provisions of Sarbanes Oxley.  As drafted, prospective issuers with less than $1 billion in revenue and $700 million in publicly traded stock would no longer be subject to external audits of their internal controls (among other things).   As I have noted in prior blogs, there has been tension between the conflicting goals of protecting investors and shielding business from excessive regulation.  While the above measure still needs to pass the Senate and be signed by the President, it is a strong indication that the latter goal is gaining traction. I do believe this is a good trend but also urge caution in moving too far. There continue to be major “blows” in financial reporting, such as those recently announced by Diamond Foods.  Moreover, outright fraud can be perpetrated by public companies.  The recent story of Puda Coal (a Chinese company which gained access to the US securities markets via a “reverse merger”) is an excellent case in point.  In this saga, the executives of this company effectively stripped the company of all operating assets, leaving shareholders with a shell company.   
Categories: Assurance

Watch for New Revenue Recognition Standard

by Ken Urish 27. December 2011 15:37
  As we witnessed recently in the buildup to Groupon’s IPO, the manner that revenue is recognized is a critical accounting issue. In Groupon’s case, they were forced to restate their financial statements. Revenue recognition has been the cause of audit failures and the focus of corporate abuse and fraud for many years. However, new standards, currently expected to be issued in 2012, are intended to improve the financial reporting of revenues.  Following is an update on the status of the proposed new standards. In November 2011, the Financial Accounting Standards Board (FASB) updated a measure on the financial reporting requirements for recognizing revenue from contracts with customers. The FASB, along with the International Accounting Standards Board (IASB), have made a number of changes to a joint exposure draft, first issued in June, 2010.  According to a press release, both boards have “further refined their original proposals” following review of nearly 1,000 comment letters. The boards are reviewing the proposals because of “the importance of the financial reporting of revenue to all entities and the boards’ desire to avoid unintended consequences arising from the final standard.”  The boards agree that “an entity would recognize revenue from contracts with customers when it transfers promised goods or services to the customer.”  In addition, in its 221-page proposal, the boards added guidance on how to determine when a good or service is transferred over time; simplified the proposals on warranties; simplified how an entity determines a transaction price (including collectability, time value of money and variable consideration); modified the scope of the onerous test to apply to long-term services only; added a practical expedient that permits an entity to recognize as an expense costs of obtaining a contract (if one year or less); and provided exemption from some disclosures for nonpublic entities that apply U.S. GAAP. The proposal contains 26 examples of how the revised revenue recognition requirements would work. 
Categories: Tax