Law360 interviewed partner Ilir Mujalovic (New York-Capital Markets) about the expansion of “test-the-waters” benefits that allow companies to communicate with select investors in order to gauge market interest before an initial public offering (IPO).
Ilir noted that “testing the waters” has helped investors better understand a company's story earlier in the IPO process. Typically, pre-IPO investors don't get to weigh in on an issuer's plans until that company launches a marketing roadshow, which is the last step before an IPO is priced. Companies benefit from investor input as well, he said.
"It is also beneficial for the company to get early investor feedback and questions from them," Ilir said. "That can help the company better position itself and better draft its story in the prospectus."
"Although I think this will be a very positive factor that will help the IPO process, I don't think this is going to drive the market on its own," he said. "Nonetheless, it is another step in the right direction that will further facilitate capital formation and IPO growth."
Previously, this benefit was limited to emerging growth companies. Now it has been made available to all companies.
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