The SEC's new Compensation Discussion & Analysis requirements emerged for the first time as a significantly challenging section of a company's Form S-1 filing, cited by a fifth of the respondents in this year's survey. At the same time, the percentage of respondents citing the preparation of financial statements as the chief S-1 challenge fell to 43% this year from 74% in 2007.
"Under the SEC's new requirements, companies now must address executive compensation in a detailed manner, providing a more complete picture and greater transparency," noted attorney Michael Kaplan of Davis Polk & Wardwell. "In particular, these new requirements focus on the disclosure of performance targets in setting compensation, and disclosing these targets discomforts many companies."
Other findings in the 2008 survey of 57 top IPO attorneys, who have advised on more than US$17.4 billion of transactions, were:
- 93% of the respondents believe that new equity issuance will be "much stronger" to "slightly stronger" in 2009. The most frequently cited factors holding back the current IPO market include "lack of liquidity," "investor fear" and "low valuations." Colin Diamond of White & Case said: "Overall, actual pricings and deals going to market have dropped dramatically since last year, but what we are still seeing is that filings are holding up much better than pricings, and people are still planning for deals in the second half of this year and next year."
- Chinese companies continue to be seen as the dominant country of origin for global IPOs in the months ahead, receiving 44% of mentions.
India was the second most mentioned country for likely new issuers, with 17% of mentions.
- Alternative energy led in the mentions of most likely industry sectors for IPOs in the coming months, with 28% of the total. Second was Biotech / Healthcare (22%), followed by technology (20%) and traditional energy companies (19%).
- Almost half the respondents expect SPACs (Special Purpose Acquisition Companies) to remain a significant source of new issuance.
"People are very receptive to SPACS, and the economics of these structures are attractive to certain investors, like hedge funds," noted Richard Aftanas of Skadden Arps.
One factor cited as making the U.S. IPO market more attractive globally has been the Securities and Exchange Commission's decision to allow foreign issuers to use International Financial Reporting Standards (IFRS) rather than U.S. GAAP reporting standards. Forty-one of 57 top IPO lawyers responding said a shift to IFRS has had a positive impact on issuers' attitude toward U.S. listings.
About 40% of respondents interviewed said they expect further changes, in Sarbanes Oxley or other regulations that would ease the reporting burden on foreign issuers.
"There is likely to be a continuing, if gradual, evolution toward the harmonization of financial reporting standards, motivated on the SEC's side by its objective of maintaining the preeminence of the U.S. capital markets," said attorney Jonathan Kravetz at Mintz Levin.
Even without regulatory changes, the top IPO lawyers were more optimistic about the ability of the U.S. to retain its share of global IPOs
than they were in 2007's survey. Asked the question, "Absent any change in regulations, will the U.S. share of global IPOs decrease?" the percentage of IPO attorneys responding affirmatively declined significantly to 55% from last year's 74%.
Concern about U.S. companies turning to non-U.S. markets for IPOs and listings because of U.S. regulatory requirements was limited. Only 18 of 57 respondents "strongly agreed," "agreed" or "somewhat agreed" with the statement: "Over the next few years, U.S.-based companies will increasingly look to IPO and list on foreign exchanges."
The survey was conducted by telephone interview during May and June.
