The Cost of Going Public in
United States By William Cate [http://home.earthlink.net/~beowulfinvestments/] From Equity Finance Solutions March 2000The following data is taken from "Going Public" by James B. Arkebauer (1994) and IPO cost website at: http://www.intranet.ca/~tgil/p2.html You should keep in mind that costs vary based upon complexity, size of underwriting and history of private company. The following IPO costs would be reasonable for a company with over $2 million in gross revenues and a 3-5 year operating history. A startup company would pay less than half this estimate to do an IPO. In some cases one or both sources acknowledge a cost listed below, but fail to offer an estimate. In those cases, I've supplied an estimate based upon my IPO experience.
Pre-IPO Costs$300,000 Legal Costs$175,000 Accounting$80,000 Printing & Mailing$100,000 Translation$30,000 Market Prep Costs$90,000 Investment Bankers$50,000 Consultants$50,000 Moody's or S&P$6,000 Blue Sky Fees$20,000 (California only) Transfer Agent$2,000 Mgnt. & Admin.$200,000 SEC Filing Fee$5,000 Taxes$15,000 (Estimated) Total$1,123, 000
Underwriting Costs
The underwriting cost is a function of money raised in IPO. The NASD allows up to 18% in costs. If gross revenue from IPO is $10 million, this is an underwriting cost can be as high as $1.8 million.
Here's how costs breakdown:
Non accountable Expense 3% Accountable Expense 5% Discount 10% The Company insiders are often required to supply IPO buyers. The norm is company insiders’ supply 50% of IPO buyers. I’ve seen ranges of required buying from10% to over 100%. The Client Brokerage Commission is often 5% on IPOs. It’s paid by brokerage firm client and doesn't affect money received by company.
These costs rise by about six percent per year. As long as present Bull Market persists, these costs will continue to rise. There are ways to reduce these costs. I offers one alternative at [http://home.earthlink.net/~beowulfinvestments/]
Relatively few companies seek practical advice about equity process. They rely on their attorneys, auditors and underwriters for help. This practice contributes to fifty- percent failure rate among companies seeking to do an IPO. Taking a company public in States is a costly project. You can cut your costs by using alternatives to doing an IPO. But, costs remain high.
