Alerts and Updates
SEC Reopens Front Door for Small Cap Listings as First Regulation A+ IPO Trades on National Exchange
June 15, 2017
To have completed the first Reg A+ deal to trade on a national exchange, therefore, is a very significant accomplishment for those working to redevelop a strong new IPO market for smaller companies.
On June 12, 2017, Myomo, Inc., a medical robotics company, became the first company listed on a major U.S. exchange by means of an initial public offering under SEC Regulation A+ created under the Jumpstart Our Business Startups (JOBS) Act of 2012. In its June 9, 2017 IPO, Myomo raised a total of approximately $8 million between the public offering and a contemporaneous private offering of investment units. (Note: Duane Morris served as issuer’s counsel in the historic deal.) The stock commenced trading with the symbol “MYO” on the NYSE MKT.
For various reasons that have been studied extensively, smaller company IPOs, which proliferated in the 1990s, nearly disappeared starting around 2000. Other alternatives, including reverse mergers, often called “backdoor listings” because they are completed without advance SEC review, took their place until 2011 when the SEC added significant regulatory burdens to these transactions. A movement to update Regulation A to “reopen the front door” at the SEC started at the annual SEC small business conference in 2010.
The recommendation from that conference led to Regulation A reforms in Title IV of the JOBS Act. The law significantly increased the amount that a company can raise, under what we now call “Reg A+,” from $5 million to $50 million and fully preempted all state “blue sky” review of those offerings, relieving significant regulatory and cost burdens. The final Reg A+ rules passed by the SEC under the JOBS Act also broadened the ability of Reg A+ issuers to “test the waters” with all potential investors both before and after filing their offering statement with the SEC. In addition, non-listed companies have somewhat scaled disclosure in their IPO as compared to a traditional registration.
The new SEC rules also permit non-listed companies a “light reporting” option after their IPO, further reducing costs and burdens as a public company while retaining strong investor protections. The SEC also has given extremely limited review to these filings, and has reported an average of 74 days from initial filing to SEC approval or “qualification.” As a result, companies are reporting a speedier, more cost-efficient and simpler process in completing their Reg A+ offerings than with traditional IPOs.
To date, the SEC has reported that dozens of Reg A+ deals have been consummated and hundreds of millions of dollars raised since the SEC’s final rules were implemented in 2015. Only a handful of these companies, however, have commenced trading their stock. To have completed the first Reg A+ deal to trade on a national exchange, therefore, is a very significant accomplishment for those working to redevelop a strong new IPO market for smaller companies.
About Duane Morris
The Duane Morris team on the Myomo IPO included partners David Feldman and Robert Hasday and associates Leigh Krafchek and Latore Price. While the industry now uses the term “Regulation A+” to refer to the updated rules, the term was not officially used in the SEC rules until 2015. David Feldman, the lead attorney on the Myomo IPO, has been credited with coining the term at the 2010 Annual SEC Government-Business Forum on Small Business Capital Formation.
For More Information
If you have any questions about this Alert, please contact Robert J. Hasday, any of the attorneys in our Capital Markets Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.