Responses to ACSPC Request for Public Input

General Impact of Sarbanes-Oxley Act

Question 9. Has SOX changed the capital raising plans of smaller companies? If yes, how have those plans changed?

a) Has SOX affected the thinking of smaller companies about buying or being acquired by other companies or looking for merger partners or acquisition targets? Explain your answer and indicate any way in which SOX has changed a smaller company from a buyer to a seller of a business, or vice versa.

The following answers have been received:

08/02/2005 13:57:44   God, yes, SOX changed the capital raising plans of smaller companies. See my answers to questions 1, 2 and 5 above.
a) Yes. See above.

08/02/2005 17:44:12   The cost of compliance is higher and information flow is more restrictive
a) In some case it makes sense to be acquired just because of the economies of scale associated with compliance

08/02/2005 23:36:32   Small companies might not go public and some may be taken private.

08/03/2005 01:39:17   Small firms are now planning to "exit" by selling to larger companies. Entering the public market has been made far more unattractive.
a) Small companies are looking to be bought. The wave of consolidations will grow as more firms are forced through 404 audits. Right now both small public firms and international firms are exempt. When everyone has to go through these punative and illogical audits, either the audits will be made voluntary or dramatically reduced or these companies will have to leave the public market or be acquired.

08/03/2005 07:01:34   devastated. look how long the process is to go public and the costs. the little guy has been shut out again...dont want to sound like a populist, but i believe the regulatory environment should be loosened, and quite frankly, the tightening policy of the last few years is classice overreach. You're concerns are justified...
a) dont know..

08/03/2005 08:55:04   Yes, we have thought very seriously about converting to private, however the need for future capital is a factor. It may just prevent us from growing as we would like.
a) Yes, looking at that for cost savings. Better to merge and have one expense than two seperate

08/03/2005 08:58:39   Yes. Would not allow small stock holders to participate in owning our community bank.
a) We may have to sell just because we cannot afford the extra expense.

08/03/2005 10:40:26   Yes! Less income means reduced capital which means reduced ability to expand.
a) Absolutely. SOX has driven many boards to simply throw up their hands and say "Let's sell while we can!" As related to banking, this means that small communities that have dealth with their home-town community bank for 100 years are now dealing with the cold reality of a financial institution located in a distant city. These institutions care little about supporting the communities lending needs or care little about supporting community projects, etc.

08/03/2005 11:03:25   Not for us.
a) Absolutely. Purchasing another company requires that it's system be immediately converted to our system or otherwise documented and tested for SOX, because our targets are smaller companies that don't have to comply with SOX, therefore it is an untested, undocumented system.

08/03/2005 12:17:58   is more difficutl to be sure.
a) small companies will consolodate out of cost effectiveness and the result will be larger companies. this sox is detremental to creation or continuation of small company's in americae

08/03/2005 13:55:42   I do not know.
a) Not sure.

08/03/2005 15:01:40   Smaller companies will have to wait until they reach a certain size to go public since there are certain staff requirements to comply with SOX. Wc could not have complied with the SOX requirements when we $100 million in assets because of the staffing requirements of having atleast two CPAs on staff, one to do the work and another to check it. We traditionally relied on our outside accounting firms, one our internal auditor and one our outside auditor, to perform important control checks. Having outsiders to perform important control procedures is not permissible under SOX, according to our external auditors. Although our external auditors may be now performing the same functions as before SOX, management can not rely on their control procedures. Someone within the company has to recheck everything before external auditors perform there reviews.
a) Some small public companies may decide to sell to larger firms to meet SOX requirements. We want to be a survivor and have taken steps to implement certain SOX requirements early; this early action on our part could persuade a smaller company to merge with us.

08/03/2005 15:22:49   Under current rules, we are scheduled to comply unless relief is provded based upon our small market capitalization. Raising capital for us would not create an issue; however, if we were already not a public company, current rules would defintely be an issue in future listing and capital raising.
a) Smaller companes who are being forced into compliance are seriously looking at their future and whether acquisiton or merger would better serve them than SOX compliance. To allow for the cost and management size for easier compliance requires a larger company. SOX is making it difficult for companaies under $250 million in market capitalization to survive.

08/03/2005 18:01:35   Please look into item no 29
a) Please look into item no 29

08/03/2005 18:05:44   Smaller companies that are privately held will continue to be private rather than go public with the costs associated with it.
a) Smaller companies will look to be sold rather than comply with SOX because of the costs associated with being public.

08/03/2005 18:30:29   x
a) x

08/03/2005 19:54:33   I do not have an opinion on this question.
a) I do not believe SOX has had any effect on merger or acquisition plansof the companies I am familiar with. SOX in its present implementation is rather worthless as a regulatory instrument.

08/03/2005 19:55:50   INTEGRITY!
a) INTEGRITY!

08/04/2005 09:17:19   SOX is requiring more capital to be in compliance. This comes back to entrepreneurs and those trying to raise money for a business venture. When raising capital, SOX cost requirements have to be considered.
a) When there are small companies having to pay additional expenses for SOX compliance, it has to have an affect. Non-compliance could be more costly to a smaller business who can't afford the resources to be compliant. On the other hand, bigger companies can afford the resources but do they want the hassle? It stands to reason though, that smaller business would become sellers more often than vice versa.

08/04/2005 09:37:56   Real companies will always raise funds and it is always difficult - SOX is just another hurdle
a) No -

08/04/2005 09:39:15   No comment
a) No comment

08/04/2005 10:40:16   I would expect that they would do whatever they could to stay under the reporting requirements which means their access to new shareholders is limited.
a) One bank in Maryland has changed its strategy. They had a reverse stock split to become private. At least two other banks in this small state have bought back stock of small shareholders to stay below the 500 shareholder filing limit. Although some of this occurred before SOX, the cost and aggravation of SOX 404 has incented more banks/companies to avoid being a public company.

08/04/2005 12:09:05   If you are already a public registrant, no really. If you aren't, absolutely!
a) Yes. We talk about being acquired by a larger company that is better equipped to handle the SOX burden. Our directors get very little in return for the tremendous financial liability they have as directors. I'm amazed that anyone will serve as a director anymore. Risk/reward is way out of line!

08/04/2005 13:38:24   Not as of yet.
a) Certainly yet. The concept of having to test controls and make assessments for near yearend acquisitions is unthinkable!

08/04/2005 14:20:27   I cannot answer this question.
a) I have no opinion.

08/04/2005 18:05:44   Not sure
a) YEs. Small companies believe the cost of being public is too high.

08/05/2005 10:54:31   No
a) Yes, it is now imperitive to insure that the acquisiton target meets SOX. It increases the cost of an acquistion.

08/05/2005 12:38:34   Integrity
a) Integrity

08/05/2005 12:44:28   No
a) N/A

08/05/2005 15:34:53   Has not affected us. We are a very well capitalized company before and after SOX.
a) We have actually said that this could be the issue that could just push us over the edge and maybe it is time to sell out. With SOX, having additional resouces of funds and time became important. A larger company could absorb the additional work and cost much easier than we could.

08/05/2005 15:43:46   For banks that I have contact with that are NOT SOX obligated, they universially state that they will not pursue ANY capital startegy that would require them to fall within the registration realm.
a) Banks that are at the smallest end of the SOX spectrum are commenting that being acquired is becoming more attractive and the "joy" of remaining a community-based bank is diminished. Mid-ranged community banks that are acquitive seem to see this as an opportunity to find the aforementioned since they are incurring the costs already.

08/05/2005 16:45:38   SOX may have changed some companies capital raising plans, but if so, perhpas that isn't such a bad thing. Do we really need companies that decide that honesty and accuracy are "bad for them" to be raising capital in the first place? Probably not. Does this mean some companies that are honest might not make it? It could mean that. Does it mean that just becasue I want to go puiblic that I should - definitely not. There needs to be a litmus test of readiness for the public market, but too often, that is not fully considered and comapnies fail, tkaing investor's cpaital with them. The more sound that a company that goes public is, the more sound the market is likely to be.Making the barrier be tha companies should be ready to enter the public market, and then the market actually breeds the strongest survivors. I think of this in a very Darwinian sense: the strong shall survive and not all worthy champions will reach their potential. This is merely natural selection at work in the marketplace.
a) I wouldn't be able to answer this question for other companies, so therefore, I choose to not answer this question. I do not think any small company can accurtely answer this question for the market overall.

08/05/2005 19:33:08   Raise more rather than less. Aditional capital required for regulatory costs.
a) Probably does increase the likely hood with some companies of acquisition or merger. Bigger is definitly better than smaller. It would be nice if there could be a class of small public companies that could be excluded from the act. With the appropriate disclosures or designation, it would certainly be of interest to investore.

08/06/2005 13:52:06   Definitely. More seeking capital from non-public sources to avoid compliance costs of SOX.
a) Yes. Smaller companies more willing to look to be acquired if they need an exit strategy, rather than go public. The private transactions are usually at a lower valuation than a public transaction.

08/08/2005 11:39:29   Our company issued trust preferred securities instead of issuing more stock. SOX is only one piece of that puzzle, the other being the tax impact of dividends versus interest expense to the company.
a) We feel our target ROE's must be somewhat higher than before based on the increased expenses associated with SOX. In the pre-SOX market, we would anticipate that higher initial expenses would go away within one year of the acquistion. Now, we assume those cost are not going away. In the long run, I feel that smaller companies will sell and sell for lower prices due to the problems and higher expenses associated with SOX.

08/08/2005 14:06:10   For companies that are already public, I do not think it will have a significant impact. Companies will always do what they have to do to remain competitive. It just becomes more expensive. I do think that for some smaller startup companies that they may find the cost of equity to become cost prohibitive thus they may have to find otehr sources of capital (debt) that may not have been as attractive in the pre SOX 404 era. Small community banks will go out initially and raise say 10 to 15 million in capital in a private placement to get the bank going. They have less than 500 shareholders. A year later they may need to raise additional capital to fund continued growth of the bank. They do not want a secondary offering to put them over the 500 shareholder limit. Community banks are very cognizant of the 500 shareholder limit because they do not want to fall under the SOX 404 compliance rules. That would be a significant drain on their relatively scarce amount of capital. If there is no other way, they will of couse pay the price. But that is an instance where a small company sees the SOX 404 rules as a significant roadblock to making them a viable, profitable enterprise.
a) I believe I have already answered that question. As a buyer, you have to make sure the acquired entity is SOX compliant. As for the Company being acquired, if they are not SOX compliant, and if they have a choice between two acquirers they are going to opt for the path that will allow them to avoid the regulations.

08/08/2005 15:43:24   It will delay many public offerings. Many smaller companies will not be able to meet the SOX 404 requirements.
a) For some management team, life is too short to live under the SOX 404 requirements.

08/08/2005 21:39:10   Our analysis shows that fewer small companies will access the U.S. markets to raise capital via IPO's due to the additional cost of being public vs. private. Companies that already pubic, and pay the cost of SOX compliance are not hindered in raising capital via secondary offerings or private placements.
a) Small companies that cannot absorb the cost of SOX compliance, and cannot go "dark" due to not qualifying to delist their securities will probably get creative to be able to delist, or will look for suitors to buy them. Small companies that want to use their stock for acquisitions will find it harder to acquire other smaller companies due to the negative perception that being public may garner (costly, time consuming, etc.)

08/09/2005 09:30:31   Under SOX, more focus will be placed on managing number of shareholders. Smaller companies will look for other sources of capital.
a) Yes. Smaller companies will resist merger in order to remain a non-filing company

08/09/2005 16:26:34   No.
a) Clearly the process of SOX has caused management and boards of smaller public companies to weigh the added cost and potential personal liabiltiy versus staying independent...this will only increase with the next round of filers.

08/09/2005 17:25:10   Only in that I think companies will go private if they can - that is if they can raise capital without being public and subject to onerous regulations like SOX.
a) I'm not sure this has had any bearing.

08/10/2005 09:04:41   no comment
a) no comment

08/10/2005 13:44:39   Not for us.
a) Yes, acquisition is not just about merging people and assets and taking advantage of competitive advantages and filling niches, but it has a cloud of uncertainty of how can we document the target companies internal controls and get the testing in place. It makes an otherwise complicated decision, into a complicated decision with a much greater amount of uncertainty and costs.

08/10/2005 16:00:18   We may have to raise more capital to cover some of our costs!
a) I think it's more that companies are trying to figure out how to delist (go private).

08/10/2005 17:18:15   No comment
a) Yes - timing must be considered, along with the quality of the acquisition target's control environment so as not to jeopardize the acquiring company's 404 opinion. No experience on actual changes of a transaction.

08/10/2005 22:09:27   Only if earning deteriorate. And that will be the case in a stagnant economy.
a) I think smaller companies will look for a way out, especially if it is an original family member running the company. The SOX legislation is just dumb and small companies will go their way in a merger.

08/11/2005 08:35:22   a) Yes, the prospect of 'SOX compliance' creates two new concerns: a) a concern that the target resluts in 'buying' a significant deficiency; b)the intergration of new processes into 'NewCo. It is much more difficult for a small organization to provided needed resources to successfully integrate under SOX.

08/11/2005 20:27:22   NO! not to my knowledge, with the exception that why would a company want to be subject to the cost of SOX.
a) Not to my knowledge!

08/12/2005 13:12:10   It has not changed our plans, but it certainly has changed those which have chosen to go private. I have no insight to those other than banking companies.
a) It has, again in relation to banks. Some of my peers have switched from looking for a merger partner or an acquisition to now taking the company private. Doing this in a growth market spells "selling" because that is the only way to realize a gain on your investment. They are doing this all because of the heavy expense and the additional regulatory burden.

08/12/2005 14:46:45   Not in our case. The cost of first year implementation and review charged by the external auditors was very high. However, it has not impacted our capital raising plans.
a) Not in our case. Given our pre-SOX 404 strong control environment our strategic goals were not impacted.

08/12/2005 16:35:01   I believe more companies are avoiding the public capital markets.
a) No opinion

08/13/2005 12:39:43   DON'T KNOW
a) DON'T KNOW

08/15/2005 13:08:27   Other than the decision to become public, no. There is, on the other hand, significant effort devoted to SOX compliance, which could be better directed.
a) We are advising emerging companies to be SOX compliant or at least be SOX aware. We believe that regulatory compliance will continue to increase as a due diligence item.

08/15/2005 14:27:30   Not in my experience
a) As noted above, I have no direct experience but suppose that the current regulatory environment is a factor in strategic decisions of this kind. I doubt it is often a dominant factor, frustrated statements to the contrary notwithstanding.

08/15/2005 14:33:20   We will be more careful in the future when deciding capital stratigies.

08/15/2005 15:10:05   They're trying to delist if possible because no auditor or agency has held up a business case of a successful methodology used by a small company that pleased auditors and the pcaob.
a) not sure

08/15/2005 15:13:01   Absolutely. The costs associated with being public are just too high for companies wanting to go public unless they want to raise $50+ million. As a result, more companies are staying private and tapping into the venture capital companies and banks for their funds. Mind you, these aren't always the best sources of funds.
a) I've spoken with a number of my banks and investors about this issue. Several of their clients are trying to sell or go private because of the costs/exposure of SOX. Virtually no one that I know of is looking to acuire targets as a result of SOX other than the venture capital companies. Additionally, the "phase in" SOX rules regarding acquisitions are fairly stringent and don't allow for much time to get the target SOX compliant.

08/15/2005 15:14:45   Not for us.........
a) Absolutely. We have some local friends who sold a company rather than deal with SOX.....

08/15/2005 16:33:43   If the current conditions persist, we will be going private, not having the slightest interest in accessing the public markets for capital.
a) We have been an acquiror, and 404 is a serious disincentive to make any acquisition small or large due to the added workload- it is hard enough to integrate acquisitions without the burden of 404.

08/15/2005 16:41:14   Not in our case. But it has increased the costs of raising the capital.
a) Not in our case.

08/15/2005 18:59:52   The plans have changed by raising capital 1)privately or (2)in Canada.
a) It would change a small company to being a seller, if a suitable purchaser could be found. The problem is the disproprotionate cost burden on small companies.

08/16/2005 09:51:21   Unsure
a) Yes it has. We were in a recent strategic situation (as a buyer) and we had to add the projected cost of SOX compliance to our financial analysis. It also took up a fair amount of board time. I believe in the past we would have focused more on the fundamentals of the underlying business.

08/16/2005 10:10:36   Yes, D & O insurance is more expensive and harder to get. Underwriters need to be concerned about the ability of the company to become SOX compliant.
a) Yes, it makes acquisition much more attractive. Conversely, it makes it much more difficult for an acquiror to make an acquisition, particularly close to year end, because the acquiror may not feel comfortable with their ability to assess SOX readiness of an acquisition target.

08/16/2005 10:21:17   I don't know.
a) Yes; SOX compliance is a significant integration issue.

08/16/2005 10:26:28   admin costs would take up a larger proportion of funds to be raised
a) no change for us

08/16/2005 10:27:48   Smaller may be better! If one creates barriers without cause, then institutions will retreat to the level of least restraint and burden. That is why so many small institutions are going private, they don't need the burden and they will keep their capital needs below levels that they might otherwise attain if not impeded by the regulatory and legislative process.
a) I cannot imagine that every small institution has not at least given thought and consultation of "selling out". I think the one year extension gave allot of institutions one more year before they say "wirte us a check". It really is a sad scenario in the banking industry.

08/16/2005 10:42:02   Of course. Companies must think twice about the public offering option due to the incredible burden caused by our current regulatory environment. In addition to SOX, look at the foolishness and "bad accounting" required under FAS123R!
a) See # 1 and #9.

08/16/2005 10:44:16   As I noted above, I would think companies would want to stay private if possible and possible take deals to Cananda, etc.
a) Cant speak to this.

08/16/2005 11:18:54   I believe they have looked to private sources of funding more frequently, to avoid the additional costs associated with meeting the regulatory reporting burden.
a) It certainly has changed the thinking of smaller companies. Now, economies of scale have to be considered from a reporting, documentation and control perspective that were never considered before. Speaking from a banking perspective, we have always been very heavily regulated and as the regulations became more voluminous and costly to follow, small banks have in recent years had to consider whether they could continue to exist independently. Many decided they could not justify the cost in terms of systems and staff and sold. I think if you look at the number of small banks that exist in this country today versus 10 years ago, you will see my point. While I realize that this isn't the sole reason for the decrease in community banks, it is certainly a major factor. Now adding Sox regulatory burdens on top of heavy banking regulations will cause this consolidation to speed up, in my opinion. I know it is a concern to many of my small banking peers. I believe also that you will see over the next several years, many smaller companies in other industries delisting or selling as they try to deal with the type of regulatory burdens Sox has added. Further, I think that is a rational response to something that is costly but provides a small company limited benefits.

08/16/2005 11:52:16   Yes - please see response to #4 above.
a) SOX has made mergers and buy outs of smaller companies much more difficult. The only companies we have bought or sold since the implementation of SOX are all private.

08/16/2005 12:14:10   As stated above it takes a much larger revenue base before a public offering can be considered. Together with the expensing of stock options and ESPP this has hindered both raising capital and attracting people
a) In general I would anticipate M&A would be a more active area because and IPO is no longer as available. The offset would be a small company that does not meet the SOX requirements may not be a good acquisition candidate.

08/16/2005 12:15:34   Unknown, but I would guess that small companies would want to remain private longer due to all of the rules and activities involved.
a) I think that SOX has affected small company thinking when they are a buyer, primarily due to the cost and time factors. If a small company is a buyer, they now have to be concerned with the business they are acquiring and the added cost and time to make sure they are SOX compliant (especially if they are private).

08/16/2005 12:40:54   No more IPO's. Sell out, or go private
a) See above. Why acquire and take a risk when you can sell and get out. BOD's don't want to be exposed to SOX type risks, and see no reason to encourage CEO's to expose the company to uncertainty.

08/16/2005 12:42:56   Do not know as we currently are not raising capital.
a) Yes, it strongly increases the pressure on us to be acquired just to reduce the SOX404 costs as a percentage of revenues.

08/16/2005 13:04:14   I would expect that start-up companies and small fast growing private companies will have more difficulty becoming a public company due to the added compliance costs of being a public company.
a) The cost of bringing a target company into compliance will certianly be an added cost of the acquisition and must be considered.

08/16/2005 13:12:04   Yes; to some extent but the SOX problem here is not as great as addresssed in other areas as presented above. The capital raising difficulty has increased, however.
a) SOX makes "going it alone" as a small company very difficult ...if not virtually impossible. The odds are that many small public company entities will go private, merge or be acquired.

08/16/2005 13:19:29   Given the FDIC capitalization requirements, we were forced to raise capital just prior to SOX coming into place, and doing so made use a public company. We have tried viewing this in hindsight to see what other options we may have had, and while we would do almost anything to not be in the current position we are in as a newly public company, we simply had no options but to take on that burden.

08/16/2005 13:20:23   No impact on our capital plans
a) no effect

08/16/2005 13:25:32   SOX, coupled with the trementdous pools of private capital, have caused many smaller companies to stay private. The old paradigm of private-public-get acquired has shifted to private-private capital raise-get acquired.
a) When SOX compliance can eat up a material portion of a small company's earnings, the value of the business is diminished by going public. See no. 9 above. Likewise, a small public company looking at acquisitions knows that the cost of SOX compliance will materially impact the cost of an acquisition, as well as the strain on management while trying to integrate.

08/16/2005 13:27:00   Yes. See the answer to question 1.
a) Mergers are more likely. Smaller companies need to improve their economies of scale.

08/16/2005 13:30:33   We have not raised any capital for 5 years, so I have no opinion.
a) Not my opinion.

08/16/2005 14:08:05   No.

08/16/2005 14:23:10   SOX has probably changed the capital raising plans for smaller companies such that public capital is less attractive than private capital.
a) SOX has clearly affected the thinking related to acquistions. Smaller companies who are not already SOX compliant are less attractive than companies that are already certified to be compliant.

08/16/2005 15:15:12   Yes, definitely. Most small companies are rethinking their capital plans. Especially if new capital will require them to be a registered company. Our company is very well capitalized, so we are not in the capital raising mode, but if in the future capital changes would force changes in the way SOX is applied, we definite would reconsider any proposal.
a) Definitely. The additional burden brought on by SOX has caused additional expense and time to consider controls and testing etc. and if the merger, buy out or sale will cause the resultant company to come under SOX requirements the buy out, merger etc. may not happen. I, personally, will tell everyone I know that is in that situation to avoid coming under the requirements of SOX if at all possible.

08/16/2005 16:08:50   Yes. Most smaller, private companies would rather sell the company. My belief is that over time, we will have fewer and fewer small, publicly traded companies.
a) It certainly affects the way we think about acquiring other, non-SOX compliant companies. We very limited resources, including personnel, we would most likely only do an acquisition in the first or second quarter so that we have time to implement SOX before the end of our fiscal year. This translates to the fact that we will pass on acquiring some companies strictly because of the timing.

08/16/2005 16:09:47   Yes. If a small company has a choice between going public and staying private, if there is a way to raise the required capital, they will stay private.
a) No opinion

08/16/2005 16:16:04   NA
a) Yes, it has accelerated the need to avoid 404 compliance by stretegic alternatives.

08/16/2005 16:45:09   YES! It has forced smaller companies to look at various alternatives due to the added costs and complexities.
a) To the extent that a smaller company would use the public markets to effect any of the above noted transactions, it would look for alternatives other than public markets. It would drive transactions towards larger partners who can deal with the additional costs of compliance more effectively.

08/16/2005 18:35:41   n/a for us.
a) n/a for us to this time.

08/16/2005 19:18:56   I believe that smaller companies are not so readily considering raising money in the public markets if they are not yet public. I believe that small public company valuations have been diminished because of the costs of compliance, evectively raising the cost of capital - whether it be from the public markets or from private debt and equity sources.
a) I am not sure how SOX has affected M&A thinking at smaller companies. On one hand, smaller companies may not be able to make the acquisitions that they might otherwise because of the negative effect of the costs of SOX on their valuations, thus limiting the company's ability to use it's stock as viable currency in the acquisition. If a company is looking at an acquisition target that is not SOX compliant, the value of the target goes down and getting the deal done becomes more difficult. Maybe lower valuations make smaller companies more attractive as aquisition targets. On the other hand, being SOX compliant may make a small company more attractive to a buyer because that is one less thing the buyer has to factor into valuation. Maybe smaller companies will look harder for acqusition candidates that will get them to a more critical mass that will allow the SOX costs to be borne over a broader base.

08/16/2005 21:40:38   Not for us.
a) Mergers seem to be impossible. How do you bring a new company into instant compliance and "attest" to all their controls?

08/17/2005 10:59:57   Most definatley it has influenced our plans away from the Public Equity Markets for future capital.
a) SOX is a factor, not a compelling factor.

08/17/2005 12:28:22   No
a) No, not as of yet.

08/17/2005 12:36:00   I can't speak to this directly. I would assume that public stock offerings are less attractive. I know that such offerings are down in my industry, but I do not know what ofter factors exist.
a) Yes--cost savings related to streamlining the SOX and entire audit process have stirred up much interest among potential targets. We are not a potential target at present, but it could be a factor in the future.

08/17/2005 12:48:33   Cost and difficulty obtaining competent Directors. Especially Audit Ctte. Chairman.
a) More companies would rather go private.

08/17/2005 16:18:39   We plan to go private, and we do not intend to ever go public again while the SOX compliance rules remain in effect. If we were not yet publicly traded and we needed to raise funds, we would not consider the IPO route because of SOX compliance rules. We spent over 4% of our revenues on SOX complaince costs in 2004, and no company can afford that expense level.
a) If we were acquiring another company, we would not acquire a company which would be unable to comply with SOX on its own, because that would impact our ability to comply with SOX post-acquisition. This limits the opportunity for acquisitions.

08/17/2005 18:49:20   We have worked with over 10 companies planning an IPO and the impact has been positive - to get their house in order from a controls and financial reporting process before the IPO which only makes it a better public company coming out of the box.

08/17/2005 18:49:27   No. SOX has definitly not reduced our cost of raising capital. If SOX genuinely provided investors with lower risk we would have seen our PE ratio, and the market's PE ratio increase post SOX and vs. foreign exchanges. I have no evidence this has happened, do you?
a) We have made many acquisitions. We never thought of ourselves as a possible acquisition target, but our corporate costs are now so high that eliminating some of them (which an acquiror could do) makes us a much more attractive acquisition target.

08/17/2005 19:31:08   Yes. We would not have good public in today's regulatory environment.
a) Yes, in two ways. Now we are looking at selling the company to a larger entity - one that can afford the costs of compliance. Also, as we look at buying companies, we know have to be very concerned about their internal controls. As a small business, we are only going to look at other small businesses for acquisition purposes. Many small businesses lack proper internal controls. If we see an interesting business, but internal controls are poor, we are unlikely to pursue the acquisition because of the negative impact it would have on our internal control reporting.

08/17/2005 21:27:12   Unsure.
a) Unsure.

08/17/2005 22:55:14   I believe it has delayed initial public offerings of small companies, which results in less private financing available for future start-ups.
a) I believe SOX has made the acquisition path to liquidity much more attractive to private company management and investors and will therefore depress values through supply/demand balancing.

08/18/2005 08:03:31   SOX causes expenses in amount of about USD$1M per year for a small company plus a substantial acquistion or management time (opportunity loss).
a) For a small company to make enough profit to cover the cost - so it needs to force to sell to become part of a bigger operation.

08/18/2005 15:26:25   a) The significant effort required for 404 complaince can be a decisive factor in whether or not to buy a business. The controls may seem to be very sound and appropriate, but the costs to prove this are prohibitive.

08/19/2005 02:56:12   No effect.
a) I've seen no effect.

08/19/2005 11:44:44   As mentioned above I think companies will explore other sources of capital before becoming public. It will also impact the decision-making process of SB filers on whether to sell additional stock and become an accelerated filer.
a) Some firms will ultimately decide that the burden of compliance is too great and will become a "seller". It may also encourage some firms to be a "buyer" to try to attain economies of scale. It's dependent on the quality of management.

08/19/2005 13:49:01   As smaller companies growth becomes dependent on acquisition targets a key consideration point is the level of the target´s compliance with the requirements of SOX. The basis for this consideration is the cost that the acquiring company will have to invest to document the controls in order to meet SOX compliance. This cost would be incurred whether or not any change occurs to the processes that the target company follows; it becomes a fixed cost to acquire. The result would be for the acquiring company to attempt to reduce the acquisition cost to cover the additional SOX cost, resulting in lower proceeds to the seller. In an environment of business consolidations it becomes more imperative to be compliant with SOX 404; if a target is not compliant the suitor could potentially walk away from a potential acquisition.
a) See previous response.

08/19/2005 14:40:28   It has created an environment whereby Sr. Management is much more cautious and spends more time evaluating other options rather than seek raising captial through public markets.
a) In 2004, I noticed many larger public companies slowing their acquisition efforts to ensure that there were no surprises. With recent changes to regulatory requirements that allow for an acquisition "holiday" I think this will diminish. Many CFOs of smaller public companies employ lip service to the impact on merger or acquisition plans, but the new regulations don't appear to have any major impact (statistically speaking) on the M&A markets.

08/19/2005 14:50:07   Clearly for those companies considering delisting, raising capital will become a challenge.
a) I believe SOX will put more pressure on companies to seek acquirors due to the lack of liquidity for delisted companies or the reduced earnings for companies remaining public.

08/19/2005 17:03:28   They are focused more on debt, rather than equity.
a) SOX has made it easier for acquiring companies to do their due diligence and rely on a target company's financial information and set of internal controls.

08/21/2005 03:34:34   I belive that smaller companies will tend to raise funds outside the US, in European markets.
a) No, I don't think SOX changed that.

08/21/2005 04:46:26   Companies are looking for opportunities to go private rather than public.
a) Companies are more inclined to sell itself and go off the stock market.

08/21/2005 22:19:50   Yes, if smaller companies don't have to go public to raise capital, they would more carefully consider the ramifications of going public.

08/22/2005 14:21:23   Not sure.
a) Not sure

08/22/2005 15:20:23   a) Yes. In looking at acquisition costs, we have to take into account the effort required to comply with SOX, especially if the target is a foreign company that is likely to resist the efforts.

08/22/2005 15:47:02   No.
a) Possibly. Compliance cost as a percent of sales would be lower in a larger (merged) organization.

08/22/2005 15:47:34   No.
a) I would have roughly the same response as in question 1 above.

08/22/2005 17:54:28   I do not believe that SOX has changed the plans of small companies to raise capital yet, but SOX will raise the cost of capital because of the negative economic effects on smaller companies.
a) SOX makes being a public company less desireable, and to that extent will bias smaller companies toward being more willing to be acquired. Alternatively, "going private" transactions will certainly increase.

08/22/2005 17:56:59   Without full current compliance, it is always a common question, that has to be answered by talking about the cost, which tends to be veiwed as non productive cost
a) Yes,because of the cost it is becoming increasingly difficult to remian independant, and larger companies tend to shy away from deals because of the additional costs.

08/22/2005 19:27:18   Yes. Part of the proceeds will have to go to SOX. How can this help but impact the capital plan!
a) SOX shows up in the EPS and therefore, it impacts the trading multiple and the possible acquisition price of samall companies. The SOX costs are not portionate to size!

08/22/2005 20:10:17   Our company went public in 1987 and has never needed nor gone to the public for additional funding subsequent to that time. But at this point, any goal would be to take the company private, not go to the public for additional funding.
a) Yes, we are looking for a possible merger opportunity. A company that might be large enough to have the duplicity of job functions or managers to be able to comply with 404.

08/23/2005 00:42:38   negative impact.

08/23/2005 07:47:56   The Sox increase the amount of capital raising in order to pay for SOX implementation
a) SOX encourage small compnies to be aquired so the management and the board will not have to deal with the extra burden and risk

08/23/2005 09:50:27   They need to raise more capital to pay for the increased costs and raise prices of products to cover expenses.

08/23/2005 15:56:30   Yes. many small companies have considered venture capital funds to take the company private.
a) Yes, SOX has made it economically unfeasible to be a small publicly traded company. One solution would be to sell out to a larger company.

08/23/2005 16:49:34   No opinion
a) No opinion

08/23/2005 18:10:00   Absolutely.
a) Yes.

08/23/2005 21:11:03   Smaller companies have had an incresingly difficult time in generating both investment from the publich market and adequate liquidity for management flexibility. That will get worse. Roughly 1/3 of public companies < $200MM in revenue have lost analyst coverage in recent years. Institutional investors pay little attention to small cap companies leaving their stocks thinly traded among a modest number of retail investors. As a result smaller companies are and will have an increasingly difficult time of access capital pools through their public stock offerings. For the most part continuing growth is the only path that can allow stock prices to generate significant capital..an avenue not open to or practical for most small companies. For many, going private has the best opportunity to improve access to capital and improve liguidity. For many it is huge step and runs counter cultural to why these small companies became public in the first place.
a) I expect the velocity of M&A to increase significantly among smaller companies. It will become a matter of survival.

08/24/2005 08:50:18   We went public in January so no, it did not change our intentions.

08/24/2005 11:28:21   Yes. More companies are accessing the private equity markets (we did a raise last year whereas we likely would have done an IPO had SOX not been enacted) and looking at foreign capital markets to raise equity.
a) I am certain that management of smaller companies have differing views on this point. Our management team is focused on consolidation in our industry so that we can quickly get to a size where an IPO in the US markets makes sense. Pre SOX, a company with $20MM in EBITDA could be considered for an IPO, today that number is closer to $50MM. As a result, we are actively looking at acquisitions to help us attain the required level of earnings so we can complete a successful IPO.

08/24/2005 12:24:07   a) Sox costs worsen the financial results of smaller companies disproportionately and make them less attractive acquisition candidates. Sox makes it more likely that smaller companies will sell to larger players to eliminate unnecessary cost.

08/24/2005 14:30:13   Its just another cost that you have to add into being a public company. The cost of documenting, testing, reporting, new systems and the cost of the auditors doing their assessment all has to be assessed.
a) NA

08/24/2005 16:19:27   Need more capital to cover professional fees.
a) Not really.

08/24/2005 16:26:56   We believe that the increased costs of becoming or remaining public will result in smaller companies viewing private capital as more attractive compared to public capital. The time and cost required to comply with SOX 404 may cause smaller companies to delay consideration or implementation of public offerings.
a) Due to higher compliance costs, smaller public companies may be more inclined to sell due to lower returns and resulting lower share prices.

08/24/2005 16:51:40   a) It has nearly taken them out of the public market. Any small cap company today is being told to "go private" in order to avoid the expense of compliance. There is a huge private equity market waiting to grab these companies. Of course, those equity firms frequently hope that the climate will change and they will be able to take the private company public in a few years. Result: the small public shareholder will lose the opportunity to invest in startups.

08/24/2005 16:54:47   don't know
a) don't know

08/24/2005 20:16:09   The SOX expense has certainly redirected plans we had for capital investments. We have postponed plans to upgrade technolgy until we know what the cost of 404 will end up being. Raising capital is not an issue for our bank as we are very well capitalized but it has redirected where we had planned deploy some of our capital.
a) We know of several community banks that have sold due to the ever increasing burden of regulatory compliance, especially in the banking industry (CRA, BSA, Patriot Act, etc). The final burden of 404 put many over the edge.

08/25/2005 15:23:41   No.
a) It forces smaller companies to explore the sale of the company to a larger competitor to relieve themselves of SOX burdens.

08/25/2005 16:04:36   Yes - a new cost has to be considered.

08/25/2005 17:02:43   We are already public so the effect on plans has not been significant alghouth due to the cost of compliance, we now need to raise more money to cover the costs.
a) I believe SOX will affect the acquisition market and that mergers, reverse mergers, etc. will become more predominant as a way for private companies to access the public financing markets.

08/26/2005 12:41:42   No impact at this time.
a) A strategic acquistion for Synthetech would be a small company in India or China - How this would impact us for SOX is a big question. We do not have the resources to make a small foreign subsidiary SOX compliant.

08/26/2005 13:07:22   SOX will have a "chilling effect" on smaller companies raising capital through the sale of stock if the number of additional shareholders would trigger registration.
a) In terms of banks the increasing complexity of regulation caused by SOX has and will continue to cause more to think about selling as opposed to growing.

08/26/2005 15:31:29   Depending on the size and liquidity of the company, Sarbanes-Oxley compliance costs may have to be financed.
a) I don't believe there are any substantial affects because acquiring companies have a 1 year period to get the acquired company compliant, which should be more than sufficient in most scenarios.

08/26/2005 16:22:08   I am sure it has. Our company has not been in the capital markets, but I believe SOX is a deterrent to companies that might want to go public.
a) I'm not sure.

08/26/2005 17:46:13   The US IPO market is no longer a valid option for thetypical smaller company and so capital raising is much more limited. A lot of companies are driven to M&A instead of IPOs, stifeling innovation and entrepreneurship.
a) The US IPO market is no longer a valid option for thetypical smaller company and so capital raising is much more limited. A lot of companies are driven to M&A instead of IPOs.

08/26/2005 19:53:54   Yes it has virtually caused them to try to ignore the public route just to avoid the new regulations.
a) Not to any appreciable extent.

08/27/2005 11:21:03   No changes have resulted from our view. We specialize in audits of these smaller public companies and we see lots of creativity and volume in fundraising still.
a) No. We see a constant level of activity - no changes.

08/28/2005 23:37:43   Yes. Private equity placement is now the preferred vehicle for capital raising for upper middle market companies.

08/29/2005 07:07:37   Absolutely. A small company would now be more inclined to go public in London or get acquired.

08/29/2005 10:21:15   While we have no current plans to raise additional capital in the public markets, the SOX impact is something we heavily consider in all such planning.
a) Although SOX has probably not been the direct cause of an acquisition, it has caused many smaller companies to think about these options. It is also a concern in trying to be a buyer and planning for getting an acquired company SOX-compliant in the time allotted along with all the normal purchase operational and accounting activities involved.

08/29/2005 10:21:25   While we have no current plans to raise additional capital in the public markets, the SOX impact is something we heavily consider in all such planning.
a) Although SOX has probably not been the direct cause of an acquisition, it has caused many smaller companies to think about these options. It is also a concern in trying to be a buyer and planning for getting an acquired company SOX-compliant in the time allotted along with all the normal purchase operational and accounting activities involved.

08/29/2005 11:21:29   It may becuase some small companies that were thinking about going public may not becuase of the regulatory burden involved.
a) Buying another company may become a SOX nightmare. If control documentation is weak, you may have to expend resources to improve it. If your buying a different line of business, you may have to double the size of your documentation.

08/29/2005 14:18:47   Allegedly, SOX has caused some firms to remain private. How widespread this phenomenon may be is subject to skepticism. I have no concrete idea of how common it may be, but I believe that if a firm can´t comply with having sufficient internal controls to be in the publicly-traded realm, then perhaps it doesn´t belong in the publicly-traded realm.
a) I have no first-hand information on this phenomenon, but I would expect that SOX has had some effect on marginal companies - which probably wouldn´t be missed by the capital markets anyway. Notice that the IPO markets have not exactly dried up in the post-SOX period - which would indicate that it´s still pretty desirable to be a new public company in the United States, despite the new regulations.

08/29/2005 14:53:30   Yes. To raise capital the company needs to be profitable, SOX has made that a lot harder.
a) Yes. The cost of compliance makes it prohibitively expensive for very small (less than $200 million annual sales) companies to be public. One way out for the very small company is to merge into a bigger operation to spread this non-productive overhead cost. Unfortunately being a part of a larger company that is often in numerous other businesses may not be good for the prosperity of those very small companies looking to merge up.

08/29/2005 15:31:21   No change for our bank as we are well capatilized.
a) Certainly the decision making process for any larger financial institution which may have an interest in acquiring our bank would be impacted by SOX and our Bank's progress with compliance.

08/29/2005 16:10:53   Of course---why would you go public and take on a level of cost that substantially reduces your profitability.
a) Yes---I have heard from a number of my banker friends that it just isn't worth it to remain independent. So here we go again---The companies that a really producing the jobs in the economy are hammered.

08/29/2005 16:20:53   It has not affected us at this point.
a) No

08/29/2005 17:09:27   Yes, because of the costs (both external and internal, smaller companies will seek out alternative capital raising options.
a) Small company mergers/acquisitions will be impacted by SOX. The cost of compliance may force some small companies to sell out, and buyers may be less inclined to buy if they cannot sign off on the target for SOX.

08/29/2005 17:12:26   Not sure.
a) See answer to question 3 above.

08/29/2005 17:12:43   a) As a company looks for targets, it will likely focus on companies that it can more easily integrate into its existing internal control environment.

08/29/2005 17:36:32   Yes. We must attempt to appeal to private capital.
a) Currently we are considering both options and could very well become a seller of our business rather than an acquisitor.

08/29/2005 19:02:32   Yes, loans and bond issues are cheaper and less of a time commitment.
a) If private, we would have a difficult time buying a public company. Other comapnies looking to acquire us express the same concern.

08/29/2005 19:05:24   a) The costs imposed by SOX have created a drag on shareholder value. As a result, SOX has made it more attractive for smaller companies to look for a buyer. In particular, smaller companies may view acquisition by a private equity fund as the preferred method to maximize shareholder value and/or access capital. We believe the pace of smaller companies searching for a private equity fund buyer will increase unless relief is provided from the SOX 404 regulatory overkill.

08/29/2005 21:00:01   No - just made them more difficult. Particularly as it relates to going public, mergers, acquisitions, etc.
a) It definitely has had an impact on how mergers and acquisitions are modeled. Potential deals must consider SOX compliance, identify costs, etc. A specific example relates to a joint venture we were considering with a partner. SOX complications to the proposed structure were an important part of the decision making process.

08/29/2005 22:40:58   a) SOX has forced smaller companies to consider selling or merging thier business to leverage the high compliance costs related to SOX. This in turn causes reduction in the work force of the smaller companies and has a negative outcome for employees.

08/30/2005 15:04:16   Yes, recently our company raised one million dollars - to complete an acquisition. The complexity of this SB2 filings and the requirements for subsequent updates is excessively burdensome. The current mind set is to avoid raising capital - at all costs to avoid the filling burden. Obviously, this will have an adverse impact on the company's growth.
a) Yes, if capital is required then, the deal is less likely to be pursued

08/30/2005 15:07:00   Yes. Smaller companies are turning to private funding alternatives and putting off accessing the public markets because of the cost both financial and distraction of management.
a) SOX has impacted acquisitions. A smaller company must comply with SOX if it's goal is to be acquired by another public company because of the regulalatory requirements. A smaller company is less likely to acquire another company because of the extra work required by SOX compliance.

08/30/2005 16:27:18   Why enter the capital market if all it bring is increased regulatory cost.

08/30/2005 17:08:46   Yes, if fewer smaller companies have considered equity capital markets as a source of capital and instead looked to private equity/debt.
a) Perhaps the most significant impact has been relative to acceptable timing of acquisitions (i.e. none late in the year). SOX compliance requirements could increase an acquiring company's compliance costs as well.

08/30/2005 17:23:36   I can see from our own managing company that trying to limit the number of investors to stay private in new businesses obviously raises the amount of capital that any one investor has to come up with. This effectively squeezes out the small investor.

08/30/2005 18:26:14   Compliance with the current disclosure system is a major consideration for us when raising acquisition capital. None of our major competitors are subject to the disclosure requirements, so we must evaluate the competitive disadvantage disclosure puts us in when making decisions on raising acquisition capital.

08/30/2005 18:48:02   If raising capital, alone, is the issue, many small companies will now think of alternatives to going public.
a) One reason for a small company goes public is often to make it easier for another company to acquire it or to merge with several small companies into a larger, more viable one. By staying out of the public market a small company will also remove itself as either a potential buyer or a seller.

08/30/2005 18:51:48   We believe that SOX will discourage many small companies from raising public funds because of the costs of compliance.
a) It has certainly entered into our discussions when talking about acquisitions. Acquiring a company that is not already SOX compliant will be less attractive to us because of the work involved and the short period of time allowed to obtain that compliance.

08/30/2005 19:47:16   Yes, the capital raising plans of small companies, both public and private, has been affected. Private companies are less likely to go public at an early stage due to the costs and the headaches of being a public entity and small companies that are already public have turned more often to PIPES and other forms of private financing.
a) Since the economics of SOX only begin to make sense for larger entities, the smaller companies are looking to sell out to larger companies to spread their overhead over a broader base of business.

08/30/2005 21:07:56   Yes.
a) Yes, additinal risk of non-compliance of the target and also impacts timing in relation to the company's compliance date.

08/30/2005 21:39:41   Yes, SOX has negatively impacted capital raising plans of smaller companies, who we expect will have less access to public markets if there is any risk of non-compliance with SOX. For example, when our Company sought to raise capital in Q2 of 2005, we were limited in our U.S. capital markets efforts by the delay in receiving our auditors opinion on our SOX 404 report, and we therefore issued convertible debt in Canada under a Regulation S exemption.
a) There has been a limited negative effect from SOX on new acquisitions given need to ensure SOX compliance and proper accounting integration of the acquired company.

08/30/2005 23:57:28   Yes. More active in capital rasing in order to cover the extra cost on SOX.
a) Yes. small companies will avoid merger or acquistion on private companies due to lack of conference to changing their culture in short period of time to comple with SOX. The lack of working capital is another reason.

08/31/2005 08:31:59   Yes, SOX has increased the costs of US corporations, so the payback to investors is longer.
a) On the purchasing side, we consider wether or not the target company is SOX compliant or not. If its not, we have to anticipate the costs that it will take to make it compliant.

08/31/2005 09:09:25   Just need more funding to stay in business if the company is already operating at a loss.
a) Much more interest on either partnering with another company so that the public costs can be shared, or with selling out completely.

08/31/2005 10:19:14   Smaller companies may decide to seek private investment in lieu of trying to go public, thus saving on the cost of SOX compliance as a SEC registrant.
a) Some small companies may choose to avoid mergers and acquistions that would force them to comply with SOX. If they are already subject to the SOX regulations, then a merger or acqusition may be favorable if the combined company can apply its combined resources to comply with SOX together instaed of separately.

08/31/2005 10:21:37   Not that I am aware.

08/31/2005 14:00:12   a) SOX compliance issues would be a factor in any proposed acquisition.

08/31/2005 14:00:16   The regulatory system has creased a set of "orphans" in the capital makrets - that being smaller companies. Small companies definitely have a harder time raising capital as a result because it's difficult to compete for attention against the large companies.
a) The additional work required to comply with SOX when an acquisition is completed may be neough to discourage buyers from participating. This is a good example of the tail wagging the dog - which is a good description of SOX, in my opinion. Selling businesses may become more attractive in order to eliminate compliance responsibilities surrounding those businesses. It's unfortunate that business decisions are being made around a conceptual system of formality.

08/31/2005 14:12:37   a) SOX has impacted the thinking of smaller companies in that many are making some minimal investment in compliance with certain of the standards. These companies believe that some consideration of SOX in their processes and controls will allow them to obtain higher valuations in acquisition transactions with other companies (especially those that are public or plan to become public soon).

08/31/2005 14:25:37   Most small companies today are going to the private debt market. You should stay away from public stock offerings if you can.
a) Yes, our bank will be sold within 12 months and that is a travesty for a small community of 15,000 people.

08/31/2005 14:32:46   Unsure.

08/31/2005 15:19:27   Yes, more and more small companies are seeking out private investors rather than taking to the public markets. Overhead savings alone substantially increase the ROI.
a) I think any size company is seriously considering any acquisition and the regulatory impact it will have. I think that your larger market cap companies are looking more at smaller acquisitions. Smaller companies can be easily assimilated into the larger environment. I would expect to see less merger of equals as the compliance efforts would require significant resources in addition to the obvious cultural and logistical issues already present.

08/31/2005 16:05:33   Most definitely. It limits the smaller investor because companies look for larger investors to keep the number under 500 so they won't be classified as a public company.

08/31/2005 16:13:45   a) SOX has affected the thinking of smaller companies to consider being acquired due to the requirments of SOX. Smaller companies in many instances see the requirements of SOX as being more disproportionately more costly for smaller companies and less able to compete.

08/31/2005 16:16:33   9. Our company acquires ownership positions in smaller companies. One of the determinants of the acquisition is SOX compliance, or the ability to become SOX compliant. Our company prefers acquisition targets that have a strong internal control system and a healthy corporate culture. However, SOX has not reduced our investment risk taking. Also, smaller companies that we have dealt with are looking at avenues for raising capital other than an IPO. Many smaller companies do not want the cost associated with a public company, in terms of dollars and resources. Some companies have preferred to be acquired by a larger company rather than become a public company, or have preferred to stay private.

08/31/2005 17:16:33   They sure won't go public.
a) Yes. We have nearly abandoned an acquisition strategy. To make an acquisition work the cultures have to mesh well. That is difficult enough. Now the level of sophistication of their internal controls and their general accounting system becomes the overriding factor. I simply believe we are unlikely to do significant acquisitions as a result of SOX section 404

08/31/2005 17:57:10   a) Yes, as a smaller company we are more open to selling the company to a larger company due to the SOX burden on us as a small company.

08/31/2005 18:22:30   We have not seen much change from our audit clients, however we continue to see increasing activity from private equity groups. Deals funded by these groups may have been funded previously through a public offering. It is difficult to determine whether this has occurred because of a decrease in competitiveness of public capital for smaller companies, or the amount of money that has moved to the private equity groups. We tend to believe it is more a result of the latter.
a) We have generally not seen this in our client base.

08/31/2005 18:23:08   Yes, smaller companies may look to more bonds and other instruments to raise capital, particularly if it impacted their filing status.
a) The timing of the acquisition would definitely come into play…a company would have to consider the impact of an acquisition to their significant processes because the acquisition would need to be assessed as part of its SOX program. Merger/acquisition activity should decrease in 3rd and 4th quarters because of the compliance impact. To that extent, smaller companies may consider selling a segment of the business that is complicated because of the impact to meeting compliance requirements.

08/31/2005 19:16:05   9. Small companies today are being targeted by most investment firms for going private transactions. Many of these are structured more to management´s benefit than that of investors. Smaller companies are turning more to private placement transactions. Again, many of these transactions are structured by the private investors in their own favor and at a cost to public investors.
a) I believe that a number of smaller companies would love to pursue a course of being acquired, but this is a trend that has not developed in any significant way. If the current regulatory push continues many of these companies will see declines in profitability, delist or go private. Under most of these scenarios the value of these types of companies is likely to decline, which takes most of the motivation to buy now away from potential acquiring companies.

08/31/2005 20:55:07   I am sure it will, as the exit strategy will be impacted. It will not be easy to go public, therefore most start ups will exit by the acquisition path. This will have a negative impact on innovation and creativeness in this country. I an aure other countries will be happy to jump in here. So we are already outsourcing a lot of our jobs and now by default we will outsource innovation. Sad Day!
a) There is no question that there will more cost and consternation over any acquisition due the SOX requirements. It will impact time money and shareholders value.

09/01/2005 11:40:19   a) I believe transactions with smaller companies are more difficult with the need to ensure that they are 404 compliant and the risk of acquisition of a company that is not.

09/01/2005 14:30:54   As mentioned in this respondent´s answer to question number 5 above, SOX has had a negative impact on the ability to raise outside capital under favorable terms. Venture capitalists and other sophisticated investors must have an “exit” strategy before they invest. Traditionally this exit (taking of profits) has been via an IPO. The IPO strategy is not now attractive, as it will raise operating costs and drain management time. Selling a small company to a larger one is now the preferred exit strategy. We believe that this has the long-term effect of reducing competition because it promotes consolidation. There is also less incentive for management to seek outside capital, making a sell out of their company more likely in the future as investors seek to “cash in.”
a) See answer to number 9 above. In addition, SOX has the long term effect that owner/managers will rely on internal growth rather than an IPO because of the disadvantages already explained. Selling out to a larger company or merging with another entity has the negative result of loss of control and employment, which most owner/managers find very unattractive.

09/01/2005 17:12:34   Yes. Small companies will look for alternatives to going public.
a) Absolutely. Ensuring a target is SOX compliant is critical. SOX will encourage consolidation is a number of industries. Larger scale makes SOX easier to implement.

09/04/2005 07:42:16   Yes. Due to the need to suport SOX, and since it is less ready and still in the works, capital raisings are delayed.
a) N/A

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