By Lynn Cowan
The investing public isn't going to be hit with a second wave of dot-com bombs as a result of new initial-public-offering legislation on its way to be signed by the president, Wall Street bankers and attorneys say.
The legislation, which originally was designed to make it easier for smaller companies to launch initial public offerings in part by relaxing some aspects of the 2002 Sarbanes-Oxley bill, ended up covering a much wider swath of deals by setting a $1 billion annual revenue threshold. That $1 billion level encompasses the bulk of IPOs launched in 2011, not just small offerings.
While some younger companies may take advantage of the looser restrictions, which were passed with wide bipartisan support by the U.S. House of Representatives Tuesday, bankers and attorneys who work on IPOs said they don't think the quality of companies coming public will be lowered by the legislation, which President Barack Obama is expected to sign.
"I would be stunned to see the floodgates open again like they did in the late 1990s, where premature companies that were not ready to be public came out. Investors wouldn't tolerate it," said Mark L. Lehmann, president and director of equities at JMP Securities. "What you will see is more high-quality companies accessing the market sooner."
Besides investors' resistance to buying half-baked business stories, another hurdle the legislation doesn't address for small companies that want to IPO is getting bankers and analysts interested in their stories. Even regional and boutique investment banks have gravitated away from taking small-cap companies public, according to bankers and attorneys.
"In the world today, if you're not a company that can go out and raise about $100 million, it's going to be hard to attract investment banks and research--all the things you need to launch an IPO," said attorney David Lynn, a partner and co-chair of the public companies group at Morrison and Foerster. "I don't think anything is going to change overnight; investment banks still want to be in a position where they can make decisions to take companies public that are economically rational for them."
Though critics of the bill said the looser restrictions won't do much to stimulate the creation of new jobs, which is a primary focus of the legislation, those on Wall Street disagreed.
"We are encouraged by this piece of legislation because it reduces the costs associated with accessing the public markets. If more companies are able to reach the public markets, that would have a positive impact on innovation and job creation," said Scott Cutler, head of listings in the Americas for New York Stock Exchange parent NYSE Euronext.
Attorney Alex Cohen, a former deputy general counsel at the Securities & Exchange Commission, said he believed the legislation would help stimulate jobs growth.
"Some parts of the country would be very different today if we hadn't had the kind of IPO activity" that formed companies like Microsoft Corp. (MSFT), said Cohen, who is chairman of Latham & Watkins's national office. "It's those kind of innovative startups, which became market leaders, that have shown quite a significant amount of growth in jobs creation."
-By Lynn Cowan, Dow Jones Newswires; 202-257-2740; firstname.lastname@example.org
--Andrew Ackerman and Jessica Holzer contributed to this article.