Cost of Ipo

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Considering an IPO? The costs of going and being public may surprise you September 2012 A publication from PwC’s Deals practice

Table of contents

The heart of the matter

1

Embarking upon the IPO process requires insight into the costs

An in-depth discussion

4

The initial public offering
Cost of going public Cost of being public 5 12

What this means for your business

27

Assess the readiness of your organization for an IPO to appropriately stage the costs incurred and to minimize unexpected surprises

July 2012

The heart of the matter

Embarking upon the IPO process requires insight into the costs

Costs directly attributable to an IPO can vary widely based on complexity, size of the company, and a company’s readiness to operate in a public environment

Initial public offerings (IPOs) give companies an opportunity to reinvent themselves. Despite the transformational nature of an IPO, which requires several different parts of the business to work together, many companies embark upon the process without a thorough understanding of the costs. Companies frequently underestimate those costs, as well as the time and complexity associated with this event. According to the results of a recent PwC survey1 on managing the costs of going public, as many as 48% of participating CFOs with firms that had gone public in the United States in the past several years said that the one-time costs associated with their IPOs had exceeded their expectations.

The magnitude and scope of IPO costs can vary significantly from offering to offering based on a number of variables, such as the size of the offering, the complexity of the IPO structure, and the organization’s readiness to be a public company. Factors impacting the cost of an IPO include: • Direct costs, such as underwriter, external auditor, legal and financial reporting advisor fees • Longer-term costs such as the need to develop external reporting, investor relations and human resource functions • Costs to institute incentive plans for executives and employees

Unfortunately, only a portion of the costs incurred as part of the IPO are disclosed publicly, which makes tracking and understanding the costs incurred by other companies that have recently become public difficult. Before undertaking an IPO, companies must fully consider the costs of the IPO process and the costs of building and maintaining a public company infrastructure. Preparing a detailed analysis of these costs will accelerate the budgeting process and make it more accurate; limit surprises throughout the IPO process; and provide organizations adequate time to develop an infrastructure that will support the rigors and requirements of life as a public company.

Figure 1: Summary of the different types of IPO costs, with illustrative examples and average costs Going public
Directly attributable to the offering (netted against proceeds) • Underwriter discount, which based on public registration statements, result in fees equal to 5%-7% of gross proceeds • Legal, accounting and printing fees associated with drafting the registration statement and comfort letter • Road show expenses • In addition to underwriter fees, on average companies incur $3.7 million of costs directly attributable to their IPO

Being public One-time costs to convert the organization to a public company (expensed as incurred) • Costs to implement new financial reporting systems and processes • Initial costs to document internal controls and comply with SOX • Costs to identify and recruit a new board of directors • Costs to implement new executive and employee compensation plans • Typically, we estimate companies incur more than $1 million of one-time costs to convert their organization to a public company

Other incremental organizational costs (expensed as incurred) • Tax and legal entity restructuring costs in anticipation of the IPO • Additional audit, interim/quarterly review costs,...
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