Cost-comparison of going public
Going public in Sweden offer low costs and high liquidity
The following article cover first the necessary services to plan for during the IPO process, and their relative costs; second, the structural changes that must be made, and third, the proper way to account for the costs discussed.
The costs of going public can be separated into four main categories; Pre-IPO direct costs, pre-IPO indirect costs, post-IPO one-time costs and post-IPO recurring costs. The specific costs in each of these categories are listed in the following table and are discussed in detail throughout the article.
Legal – The fees required for your company’s outside counsel and the underwriter’s counsel are generally affected by the same factors listed above in the section on costs associated with underwriters, but you should expect to pay from $0.5 million for a Stockholm listing and up-to $1.5 million for a New York listing. Included in these legal fees are the preparation of the offering document as well as the review of contracts and advice directly related to the offering.
Auditor – In addition to the year-end audit required by the marketplace and in the USA by the SEC you will need to hire an auditor to issue a comfort letter to the underwriters, to review the registration statement, to audit the financial statements included in the offering document, and to review all documents related to the offering, such as comment letters from the SEC.
Auditor fees in Sweden are generally within $0.1 – $0.2 million and in the USA within $0.5 – $1.2 million, but, as is the case with most fees related to an IPO, auditor fees can vary depending on the complexity of the offering. The number of issues found by the auditors as well as the length of the comment letter process with the SEC will be reflected in the auditor fees. The largest accounting firms for IPO’s are EY, Deloitte, Grant Thornton, KPMG, and PwC.
IPO Consultant – In addition to hiring an external auditor, most companies find it necessary to hire a team of IPO consultants to help with IPO preparation and execution. These teams can assist in several ways, including the following:
The fees for this work are broken up into two parts; the more technical accounting related fees range on average from $0.3 million to $0.8 million, while advisory/consulting fees will often range from $0 to $0.5 million. It should be noted that these fees can far exceed the average amounts listed for a complex or large IPO, with fees reaching upwards of $10 million.
Printer – The preparation, distribution and management of marketing materials, in teh USA the SEC filing, and all other document printing and management needs can create a bill anywhere between $0.2 million – $0.5 million. These specialised services are typically essential to a successful IPO transaction.
Initial costs Nasdaq First North (SE) compared to TMX Group (CA) and AIM (UK)
Actual costs vary depending on the nature and complexity of a transaction, but the following ranges may be helpful as a general guide:
Other fees to consider include:
Pre-IPO Indirect Costs
Restructuring Costs, Including the Audit Committee Charter – The costs required to restructure a company may be incurred as late as a month or two before the filing occurs, or as early as 2-3 years prior to filing. These costs are made up of legal, information technology, human resource, audit, valuation, and financial advisory fees. Some of the restructuring issues to be considered are formation of an internal legal department, a tax department, an investor relations department, an internal audit department and audit committee, the drafting of by-laws, the implementation of new reporting and accounting systems, the creation of new employee benefit plans, and the creation and documentation of internal controls. The amount of time needed for this restructuring and the number of professional services that are required for your specific needs will determine the extent of these costs.
US Costs to Make Financial Statements S-X Compliant, Valuation Services and Reports, and Articles of Incorporation – In addition to restructuring costs, you will likely be faced with costs related to valuation services for cheap stock analysis, 409A compliance, and any other necessary valuation; financial statement reviews; and advisory services to aid in creating Articles of Incorporation and ensuring regulation S-X compliance. This may mean the hiring of additional audit, valuation, and financial advisory professionals.
Post-IPO One Time Costs
Much of what has been stated regarding recurring post-IPO costs stands true for one-time costs as well. Just as with recurring costs, PwC has estimated that companies in the USA will spend on average $1 million on one-time costs, post-IPO. the costs in Stockholm are much lower on average $0.1 million.
New Financial Reporting System and Implementing New Controls – Though some of the cost for a new financial reporting system may have already been incurred prior to your IPO, it is likely your company will not be fully integrated into the new reporting system by the time your IPO is complete. These post-IPO costs can include professional accounting advisory fees for implementing internal controls into the new reporting system and IT advisory fees for the installation, implementation and testing of the system.
New Board of Directors – Depending on the makeup of your current Board of Directors, you may need to consider recruiting and hiring additional Board members. As a public company, the Board of Directors takes on many new and significant tasks. Consider the ethical tone of your Board; the capacity of the Board to hire, train, and manage senior-level employees; the Board’s ability to identify and manage risks; the Board’s views on corporate governance; etc. Weaknesses in these areas can lead to problems for your company down the road, so taking the time to structure a strong, well-rounded Board of Directors is essential to the long-term success of your company.
New Compensation Plans – Although the fulfilment and administration of compensation plans is a recurring cost, the creation of stock-based and other forms of compensation plans should be a one-time cost. As with the reporting system, a good deal of the work and costs related to developing new compensation plans may have already been completed and incurred at this point, but these plans have likely not been finalised. KPMG discusses post-IPO compensation plans in their article titled “The-Entrepreneurs-Roadmap,” suggesting that post-IPO compensation plans need to “[position] the company for growth and predictability. The article establishes that “newly public companies can best approach aligning and optimising the people costs within a new public entity with…delivering value to shareholders” through a “total rewards strategy” that will “[serve] the needs of all stakeholders.” These plans are an important part of being a public company and should not be overlooked.
Accounting For The Costs Of An IPO
The costs can be organised as follows:
Though several costs of an IPO fall into only one of the two categories listed above, many costs will need to be allocated between the two methods. Examples of costs that fall under each of these scenarios are listed below.
Costs to be netted against gross proceeds:
• Underwriter Fees
• Road Show Costs
• Printer/Web Costs
Costs to be expensed as incurred:
• Listing Fees
• Restructuring Costs
• Costs of New Board of Directors
• Costs of Compliance
Costs to be allocated between both methods:
• Legal Fees
• Auditor Fees
• Advisory Fees.
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Published 25 February 2019