Did Sarbanes-Oxley Kill IPOs?

Did Sarbanes-Oxley Kill IPOs?

The op-ed page of the Wall Street Journal yesterday declared that what it called the "bipartison overreaction to the accounting scandals at Enron and WorldCom" known as the Sarbanes-Oxley Act of 2002 (SOX) is the primary reason that there are now very few initial public offerings. The article implores the Administration and Congress to grant SOX relief as a way for more companies to want to be public.

A counterpoint article in Fortune takes points often cited by venture capitalists about the problems in the IPO market and debunks them. The drop off in IPOs happened well before SOX was passed, the article points out. It further suggests that maybe vc's have just discovered that M&A is a better, cleaner and simpler exit which can be as lucrative as going public.

Last, the article says, IPOs in fact are not dead. Last year there were 72 deals (though there were almost 300 in the good years) that raised $7 billion. But it also points out that companies pursuing IPOs have been getting larger, again not because of SOX but other possible reasons such as underwriters focusing on larger fees. The article concludes that while SOX may be a contributor to the IPO dropoff it is "hardly 'the elephant in the room.'"

I respectfully disagree with my WSJ friends here and side more with the Fortune point of view. A bunch of factors, such as cited in the Fortune article, derailed the IPO market, and it wasn't lack of interest in being public - it is one of the reasons reverse mergers and other IPO alternatives have become so popular.

The 200+ companies that go public without an IPO each year don't seem to have a fear of SOX, especially since smaller reporting companies are now exempt from the worst auditing requirements of SOX 404. If you're interested in hearing more of my thoughts on this let me know....

Next, an update on Regulation A reform efforts, which relates to all this!

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.

For more information about LexisNexis products and solutions connect with us through our corporate site.