How Many IPO Companies Will Qualify as EGCs?

How Many IPO Companies Will Qualify as EGCs?

Blog The Road to IPO: Legal and Regulatory Insights into Going Public

The JOBS Act offers important benefits to companies that qualify as emerging growth companies (EGCs). The JOBS Act defines an EGC as any issuer that had total annual gross revenues of less than $1 billion (adjusted for inflation every five years) during its most recently completed fiscal year, other than an issuer that completed an IPO on or before December 8, 2011. A company that is an EGC on the first day of its fiscal year will no longer qualify as an EGC upon the earliest of:

  • the last day of its fiscal year following the fifth anniversary of the first sale of its common equity securities in a public offering;
  • the last day of a fiscal year during which it had total annual gross revenues of $1 billion (adjusted for inflation every five years);
  • the date on which it has, during the previous three year period, issued more than $1 billion in non‑convertible debt; or
  • the date on which it is deemed to be a "large accelerated filer" (a company that has been public for at least twelve months, has filed one Form 10-K, and has a public float of at least $700 million).

To estimate how many IPO companies will qualify as EGCs, we reviewed the revenue profiles of all issuers that completed US IPOs between 2007 and 2011. Our conclusion? Approximately 90% of all IPO companies in this period would have qualified as EGCs. To the extent that the JOBS Act succeeds in encouraging smaller companies to go public that might not otherwise have done so, EGCs could end up representing even more than 90% of the IPO market going forward.