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General rules for acquisitions more than 75 days pre-IPO
Acquisition criteria Reporting requirement 3
The acquisition does not exceed 20% for
any of the three significance criteria.
The acquired business (or multiple
acquisitions of related businesses)
exceeds 20% but not 40% for any of the
three significance criteria.
There have been multiple acquisitions of
unrelated businesses whose significance
is less than 20% individually but more
than 50% for any of the three significance
criteria when aggregated.
The acquired business (or multiple
acquisitions of related businesses)
exceeds 40% but not 50% for any of the
three significance criteria.
The acquired business or any acquisition
that is probable at the time of the
offering exceeds 50% for any of the
three significance criteria (or securities
are being registered to be offered to the
shareholders of the acquired business).
acquisitions that occurred more than 75
days before the offering. 2
In addition, if audited financial
statements are required, applicable
interim financial information that would
be required according to the guidelines
described in “Age of financial statements”
and “Unaudited interim financial
statements” must also be included.
Staff Accounting Bulletin No. 80 (SAB
80) provides a special interpretation of
Rule 3-05 of Regulation S-X for IPOs
2
An exception to the general requirements occurs
for an individual or multiple acquisitions that
exceed 50% of any of the significance criteria,
for which, if they have closed within the 75-day
period prior to the offering or are “probable” at
the time of the offering, the financial statements
described above will be required.
Audited financial statements for the earliest
of the three fiscal years required may be omitted
if net revenues reported by the acquired
business in its most recent fiscal year are less
than $50 million. Unaudited interim financial
statements may need to be included, depending
on the time of year that the offering takes place.
No audited financial statements required.
One year of audited financial statements
required.
One year of audited financial statements
required for a mathematical majority of the
individually insignificant acquisitions.
Two years of audited financial statements
required.
Three years of audited financial
statements required, unless the business
has under $50 million in revenues, in
which case only two years of audited
financial statements required.
involving companies whose operations have
been built by the aggregation of discrete
businesses that remain substantially intact
after acquisition. SAB 80 allows firsttime
issuers to consider the significance
of businesses recently acquired or to be
acquired based on the pro forma
financial statements for the issuer’s most
recently completed fiscal year. While
compliance with this interpretation requires
an application of SAB 80’s guidance and
examples on a case-by-case basis, this
interpretation allows currently insignificant
business acquisitions to be excluded from
the financial statement requirements, while
still ensuring that the registration statement
will include not less than three, two and one
year(s) of financial statements for not less
than 60%, 80% and 90%, respectively, of
the constituent businesses of the issuer.
The acquisition or probable acquisition
of real estate operations is subject to its own
3
The number of years for which balance sheets
and income statements are required to be
presented is based upon the level of significance.
set of disclosure requirements under Rule
3-14 of Regulation S-X, which addresses
income-producing real estate operations
such as apartment buildings and shopping
malls. Rule 3-14(a) requires as follows:
• Audited income statements must be
provided for the three most recent fiscal
years for any such acquisition or probable
acquisition that would be “significant”
(generally, that would account for 10%
or more of the company’s total assets
as of the last fiscal year-end prior to
the acquisition). If the property is not
acquired from a related party, only one
year of income statements must be
provided if certain additional textual
disclosure is made. Rule 3-14(a) also
requires certain variations from the
typical form of income statement.
• If the property is to be operated by
the company, a statement must be
furnished showing the estimated
taxable operating results of the
company based on the most recent
12-month period, including such
adjustments as can be factually
supported. If the property is to be
acquired subject to a net lease, the
estimated taxable operating results
shall be based on the rent to be paid
for the first year of the lease. In either
case, the estimated amount of cash to
be made available by operations shall
be shown. An introductory paragraph
is required stating the principal
assumptions which have been made in
preparing the statements of estimated
taxable operating results and cash to be
made available by operations.
• If appropriate under the circumstances,
a table should be provided disclosing
the estimated cash distribution per unit
for a limited number of years, with the
portion thereof reportable as taxable
income and the portion representing
a return of capital together with an
explanation of annual variations, if
any. If taxable net income per unit will
become greater than the cash available
for distribution per unit, that fact and
the approximate year of occurrence
should be stated, if significant.
The SEC staff has noted that one
element used in distinguishing a real
estate operation from an acquired business
subject to Rule 3-05 of Regulation S-X is
18 NYSE IPO Guide