September 21, 2022

SEC Comments: So, You Say You’re “A Leading . . .”?

When I was working on a lot of IPOs, it used to drive me nuts when one of the bankers would try to have the prospectus characterize the issuer as “a leading” or, worse, “the leading” company in its particular industry or market. I’d usually make some effort to push back against this, for a couple of reasons.  The first was that most of the clients I took public often had less than $100 million in revenues – and sometimes a lot less – so the claims sometimes didn’t pass the “now say it with a straight-face” test.  The second was that the issuer often had a hard time finding data to objectively back up its claims to leadership.

Invariably, the filing would contain some version of the banker’s language and, just as invariably, the Staff would respond with a request to clarify the claim of leadership & provide some proof of this claim.  That usually resulted in some form of additional hedging language to the prospectus that the bankers hated. It’s been more than 10 years since I’ve worked on an IPO, but I’m heartened to see that, according to this SEC Institute blog, some things never change.  Companies continue to make these claims in their IPO prospectuses, and the Staff continues to push back.

The blog provides a couple of examples of recent Staff comments that you can point to if you’re looking for some ammo to persuade an investment banker to add appropriate qualifying language to the prospectus summary before the Staff asks for it.

WilmerHale’s Gregory Wiessner reached out with a great observation on this topic: “On your entry about being “the leading/a leading…”, one way I’ve persuaded clients to think about this is when they later go for merger review. Once you start getting to large M&A, those statements can leave you smarting over market control and further reviews. All of a sudden, there is competition lurking everywhere.”

John Jenkins