(1994) and the IPO cost website at:
http://www.intranet.ca/~tgil/p2.html
You should keep in mind that costs vary based upon the complexity, the
size of the underwriting and the history of the 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 the money raised in the IPO.
The NASD allows up to 18% in costs. If the gross revenue from the IPO
is $10 million, this is an underwriting cost can be as high as $1.8
million.
Here's how the costs breakdown:
Non accountable Expense 3%
Accountable Expense 5%
Discount 10%
The Company insiders are often required to supply IPO buyers. The norm
is the company insiders' supply 50% of the 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 the
brokerage firm client and doesn't affect the money received by the
company.
These costs rise by about six percent per year. As long as the 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 the equity
process. They rely on their attorneys, auditors and underwriters for
help. This practice contributes to the fifty- percent failure rate
among companies seeking to do an IPO. Taking a company public in the
States is a costly project. You can cut your costs by using
alternatives to doing an IPO. But, the costs remain high.
Seek to go public based upon flat fees, not hourly rates. This limits
your risk to the agreed upon fees. Find someone who can package the
entire registration and listing service for you. It's always cheaper
to buy the complete service rather than the individual parts. The
supplier is taking several companies public and gets better prices
from professionals for their services.
It's less costly for a non-American company to go public in the States
than for any U. S. Domestic Company to become a U.S. public company in
America. The money savings relate to lower levels of legal
responsibility for the filing attorney doing a 20F filing rather than
an SB2 filing. The non-American company can use an auditor and an
audit method that is accepted in their local country. This saves money
over paying an American Accounting Firm to do a GAAP audit.
There are other savings for non-American companies trading in the
United States. They include the fact that the SEC does not require
quarterly filings (called 10Qs), nor is an annual shareholders report
or meeting. I believe that clear, concise communications with
shareholders is vital. I believe that both positive and negative
information needs to be shared in a timely manner. I doubt the SEC
requirements for 10Qs and shareholder reports is the most cost
effective way to achieve these goals.
Historically, the Over-the-Counter and Over-the-Counter Bulletin Board
(OTCBB) are the easiest and cheapest places to list your shares. This
market has a bad reputation. My advice is seek to list your shares on
a Regional Stock Exchange as soon as your company meets the regional
stock exchange's listing requirements.
Epilog: Since March 2000, the Enron, Tyco International and WorldCom
stock scandals have driven the cost of doing a GAAP audit upward.
Inflation continues and the cost of doing an IPO has risen
substantially in the past four years. (5/04)
You can contact William Cate at the Beowulf Investments website:
[http://home.earthlink.net/~beowulfinvestments/]
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