What
Will an IPO Cost?
The expense of going public can
be considerable - hundreds of thousands of dollars. It is
not a decision to be taken lightly. Of course, most of the
expenses of going public can be offset from the proceeds of
the offering instead of being charged to your company's income
statement. But the costs are real, and most of them will be
paid for up-front. An unsuccessful IPO attempt could end up
costing precious capital that could have been dedicated to
growing your business.
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Of course, every IPO is different,
but most IPO expenses will fall into one of the following
categories:
Underwriter Expenses
The commission that will be paid
to the underwriter of the IPO will typically be the largest
single cost that a company will incur in going public. The
underwriter can be viewed as the market-maker for the stock
of your firm. They will deal directly with investors to solicit
participation. The underwiter will be responsible for determining
the size and price of the offering, based on comparable transactions
and preliminary investor commitments and reactions to your
offering. Generally, the underwriter makes its fees by charging
a percentage of the proceeds of the offering. However, if
your offering is perceived to be small or risky, the underwriter
may seek to mitigate its risk by structuring the fee in a
different way - and requiring more of its fee in advance.
Legal Fees
Legal fees are an inevitable part
of going public. It is important that all of the documentation
is drafted properly and that you are complying with all regulatory
requirements. While it is possible to minimize your legal
expenses, this is not an area you will be able to cut too
many corners on.
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Accounting Fees
A good accounting firm will be critical
to your IPO. The accountant will be heavily involved in preparing
the registration statement and also in preparing the comfort
letters that will be required for the underwriters. The underwriters
will look to the accoutants and auditors to substantiate financial
claims and projections contained in the prospectus.
Printing Costs
Printing costs can be a significant
portion of the total expense of going public. For starters,
not just any printer will do. Because confidentiality is so
critical in the early stages of the IPO, underwriters will
work only with specific printers who specialize in the production
of IPO documents. Printing requirements will include the registration
statement, the prospectus, the underwriting documents, and
the stock certificates. The ultimate cost will vary depending
on the size of the potential offering and how much color is
used.
Liability Insurance
The cost of acquiring and carrying
the necessary liability insurance for directors and officers
of your company will also be substantial. You can typically
expect an adequate level of coverage to cost $100,000 or more
for a company going public.
Other Fees
In addition to the fees described
above, there will be other fees and costs of a lesser magnitude.
These fees include things such as:
- SEC Filing Fees
- Stock Exchange Listing Fees
- Registrar and Transfer Agent
Fees
While a successful IPO can transform
your company into a thriving concern, the costs are not insignificant.
It is not a step to be taken without careful thought and planning.
How
Long Will the IPO Process Take?
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