April 30, 2019

IPOs: Slack Files as Direct Listing

Following up on John’s blog about whether “non-IPOs” will become the new IPOs, on Friday, Slack Technologies filed a Form S-1 for its anticipated direct listing on the NYSE. Slack is the second big company to go this route (the first being Spotify). There are no lock-ups and no new shares being issued – but will this fundamentally change how IPOs get done? After delving into the unique parts of Slack’s “Plan of Distribution,” Bloomberg’s Matt Levine notes:

There is a sense of a sort of shadow-bookbuilding process: Slack’s banks are not underwriting an IPO, they’re not marketing stock to potential investors on behalf of Slack and its existing investors. But they are having chats with the existing private investors in Slack to see what their interest is in selling, and they’re having chats with potential public investors to see what their interest is in buying, and at what price, and those chats are all being relayed to the designated market maker, who will … just take binding bids and offers for the stock and set a price that clears the market? That last part seems pretty mechanical, which makes it not entirely clear why you need the first part, but I guess it is hard to let go of the IPO process entirely.

At any rate, there seems to be no shortage right now of “unicorn IPOs” – in one form or another. Yesterday, The We Company (otherwise known as “WeWork”) announced that it’s confidentially submitted an amended draft Form S-1. The WSJ reported that the filing was made without the assistance of bankers, but that doesn’t mean they won’t be hired eventually. If you’re a cynic, you’re not alone

More on “Regulation G: Coming to a CD&A Near You?”

A couple weeks ago, John blogged that SEC Commissioner Rob Jackson wants the SEC to require explanations & reconciliations when non-GAAP numbers are used in the CD&A. Yesterday, the Council of Institutional Investors announced that it agrees with that suggestion – and it’s filed this petition with the SEC to recommend rule changes. Specifically, the petition requests that the SEC:

1. Amend Item 402(b) of Reg S-K to eliminate Instruction 5 (which says that disclosure of target levels that are non-GAAP financial measures won’t be subject to Reg G and Item 10(e))

2. Revise the Non-GAAP CDIs to provide that all non-GAAP financial measures presented in the CD&A are subject to Reg G and Item 10(e) – and that the required reconciliation must be included within the proxy statement or through a link in the CD&A

CII says it isn’t seeking a ban on using non-GAAP measures in compensation plans. However, it says that its members are concerned about the complexity in executive pay structures – and the challenges in understanding the link between pay & performance.

Lease Accounting: Compliance Still Costing a Pretty Penny

Late last year, “Accounting Today” reported that companies expected to spend $1-5 million to implement the new lease accounting standard, ASC 842. And a recent Deloitte poll is showing that, for many companies, compliance efforts will continue to require time & money for the rest of this year. Here’s the intro from Deloitte’s press release:

Nearly half of public company executives see no slowdown ahead in the time and effort to be spent on compliance with the new lease accounting standards issued by the Financial Accounting Standards Board and the International Accounting Standards Board, according to a new Deloitte poll conducted in February 2019. In fact, after they file Q1 2019 earnings, one-quarter (25 percent) expect to spend the same amount of time and effort on lease implementation related activities and nearly as many (23.9 percent) plan to spend more.

It’s no wonder that people are working so hard to get implementation right – Audit Analytics predicts that the standard will have a material balance sheet impact on 80% of companies.

Liz Dunshee