Amendments to Regulation A (Regulation A+) went into effect in 2015. The SEC proposed Regulation A+ to satisfy provisions of the 2012 JOBS Act that called for increasing access to public capital for early stage companies. The hope was that reduced regulatory requirements would entice private companies to enter the public markets by reducing compliance costs.
In its recent report called “Strength Indicators of Mini-IPOs”, Audit Analytics took a deeper dive into 323 offerings by 290 Regulation A+ companies.
Key findings include:
- 290 companies used Regulation A+ offerings to raise $400 million in funds
- 9 companies are currently listed on major exchanges, additional 2 companies are listed on OTCB board
- Most of the Regulation A+ companies have no revenue and limited assets
- All qualified Tier 2 offerings and 20% of the Tier 1 offerings received an audit opinion
- Top Regulation A+ audit firms were Artesian CPA, dbbmckennon, and RSM US with 26, 13 and 11 audits
- Top Regulation A+ law firms were KHLK, Goodwin Procter, and Legal & Compliance with 25, 11 and 8 representations
Tier 1 offerings are limited to $20 million per year. But they are only required to receive a review of their financial statements and they are not required to disclose financial information after their initial offering.
Tier 2 offerings are limited to $50 million per year. They are required to receive an audit of their financial statements, but it can be conducted by an accounting firm that is not registered with the PCAOB. The reporting requirements are also significantly reduced. For instance, financial statements are only required semi-annually.
More than 290 companies have sought to use the new regulation to raise capital. Only 40 have been successful in completing their offerings, which have been termed “mini-IPOs”. Over 100 offerings have been qualified by the SEC and are currently in progress.
So far, nine companies that have completed Regulation A+ “mini-IPOs” have listed on either the NASDAQ or the NYSE. Eight of the 9 companies have lagged the market by about 40% on average. The only exception being Longfin. Longfin rose from $5 to over $140 after announcing the acquisition of a blockchain company but has settled around $35 recently.
A version of this report was previously available on FactSet to subscribers of our Accounting Quality Insights. Accounting Quality Insights, an Independent Research solution by Audit Analytics, offers premium access for portfolio managers and analysts seeking connection between public company financial statements, the underlying business, and stock returns.
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