Compliance Challenges for Going Public on U.S. Stock Exchanges
Explore the top compliance challenges faced by emerging companies when going public on U.S. stock exchanges, including Sarbanes-Oxley, corporate governance, Regulation Fair Disclosure, and listing requirements. Learn how these barriers impact exit routes, investor preferences, and the perceived risks associated with IPOs and M&A. Find out why compliance costs are prohibitive for small companies and the need for right-sized compliance requirements.
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Presentation Transcript
21st Century Version of 4 Horsemen Required Would you consider a boutique I-bank to be the lead book runner for going public on a U.S. stock exchange? 100% 90% 80% 70% 32% No 32% Not Sure 60% No Not sure Yes 50% 40% 36% Yes 30% 20% 10% * Source: DCM Analysis /Survey of Venture-Backed Companies, 2009 Participants (N) = 108 0% Total Early stage Mid stage Late stage 1 DCM Proprietary and Confidential
Emerging Company IPOs on International Exchanges: Additional New Liquidity Sources Top 3 Compliance Challenges to Going Public On U.S. Stock Exchanges # of Responses Answered as a Top 3 Issue (Participants =108) Global Venture-Backed IPOs* 86 Flag of the United States of America 6 2007 2008 102 Sarbanes-Oxley 45 5 80 Corporate Governance 2007 2008 Regulation Fair Disclosure 74 94 ** (Reg FD) 35 Listing Requirements of U.S. Stock Exchanges 62 2007 2008 6 * Sources: Thomson Reuters, Venture Source, Zero2IPO, Venture Intelligence ** Includes VC- and PE-backed IPOs Other 3 2 2006 2007 Source: DCM Analysis/Survey of Venture-Backed Companies, 2009 2 DCM Proprietary and Confidential
Barriers to Going Public on U.S. Stock Exchanges Exit Route Preference and Expectation (n=108) Top 3 Barriers to Going Public # of Responses Answered as a Top 3 Issue (Participants = 108) Compliance Requirements (Sarbanes-Oxley, Audit, Governance) 76 M&A 54% 74 Increased Volatility in the Public Markets 81% M&A Better Alternative (Faster Process, More Liquidity) 58 Investment-Banking Related Issues (Analyst Coverage, Requires High Rev Threshold) 53 Transaction Costs of Going Public (Legal, Banker Fees, Non-Compliance Related Costs) Higher Perceived Litigation Risk from 46% 33 IPO 19% 15 U.S. Investor Base Preferred Exit Route Likely Exit Route Other 15 Current Regulation Has a Major Impact on How Emerging Companies Consider Their Exit Route Source: DCM Analysis/Survey of Venture-Backed Companies, 2009 3 DCM Proprietary and Confidential
Cost of Compliance Is Prohibitive for Small Companies Top 3 Compliance Challenges to Going Public on U.S. Stock Exchanges # of Responses Answered as a Top 3 Issue (Participants = 108) 102 Sarbanes-Oxley Corporate Governance 80 Regulation Fair Disclosure 74 (Reg FD) Listing Requirements of U.S. Stock Exchanges 62 6 Other Emerging Companies Need Right-Sized Compliance Requirements to Thrive Source: DCM Analysis/Survey of Venture-Backed Companies, 2009 4 DCM Proprietary and Confidential
