What Is The True Cost Of Filing For A Public Offering?

What is the true cost of filing for a public offering?

Scrapped IPOs on pace to set record this year (Bloomberg News 10/3/2011)

Yelp, others dive for IPO window after Groupon (Reuters 11/8/2011)

Before you “dive for the IPO window” make sure you know how much it really costs.

Recent filings for IPO’s suggest the current out of pocket cost, before consideration due the underwriter, are running between $4 and $5 million.  Most of these costs go to the outside attorneys, accountants and to a lesser extent the various regulatory filing fees.  This doesn’t count the internal costs of improving the management, board, governance, public relations and reporting systems.  These costs can also run into the millions.  Lastly, don’t forget the underwriter’s piece of the action will be approximately 5-7% of the total offering.

Other expenses surrounding an offering should include outside consultants such as speech and public relations consultants, travel costs for the roadshow and even personal wealth consultants to instruct shareholding employees of their rights and responsibilities during after the offer.  While generally not material to the overall cost, they should be included in the budget.

In addition to the measurable costs, remember that the amount of management time can be an enormous distraction.  Preparing for an IPO is an almost full time job for a CFO and other key members of management.  The CFO should make sure that a strong support staff is in place to managing the day to day financial management of the business, thus giving the CFO the opportunity to focus on this monumental task.

Lastly, there is the ongoing cost of running a public company.  For an average sized, “baby public company” of $100m-$250m in revenue, the additional overhead can be upwards to $1m per year.

Planning for an offering typically starts between 4-12 months in advance of the offering date with an emphasis on the high side of that timeline.

In our experience, companies who do a poor job of planning for a public offering spend 2-3 times the aforementioned costs.  

Finding the “window” for an IPO can be iffy proposition.  A prudent CFO will make upgrades to the infrastructure keeping mind that at any time an offering may be pulled.  Hence, infrastructure upgrades, first and foremost, should be a good return on investment for the company.