Over the last few months, we have been talking about taking your company public. We have spoken about the advantages and disadvantages of being a public company and we have talked a little about life as a public company. So what does it cost to take a company public? Is it more expensive to live as a public company? Letís see.
If you go public, you will find that you need to assemble a team of knowledgeable advisors to help you navigate the securities world. While the prospect of having a team of highly qualified advisors sounds terrific, there is a downside - cost. Initially, your team will include, at a minimum, securities attorneys, corporate general counsel, auditors and investment bankers. These people will not only help you get your securities in the hands of the investors, but will also be needed for ongoing operations. The world of the public company is tricky and there are numerous rules you can break without even trying and, while the cost of good advice may be high, good advisors are worth their weight in gold.
So, what does it cost to go public? Hang on because this is going to be a shocker. The cost of going public can cost up to 25% of the funds raised. Compare that to the relatively low fees in a typical loan transaction. The only drawback to the loan transaction is the bank will eventually want its money back - with interest. Investors want the same thing, but they are willing to let you keep the money as long as you let them have a part of the company.
You may think these fees are exorbitant, but when you consider the people and work it takes to get a stock to the street, they may not seem so high. At a very minimum, you will have the following cast of characters in the fishbowl with you:
- Investment banker
- Corporate general counsel
- Securities attorney
- Certified Public Accountant
- Financial printer
So whatís the typical cost of each of these advisors? The investment banker will be one of the most expensive with the fee equaling a percentage of the funds raised (up to 18% under National Association of Securities Dealers rules) plus out-of-pocket expenses. Legal can range anywhere from $50,000 to $250,000 while accounting and audit costs can range anywhere from $50,000 to $500,000 with some sources pegging the top end of the range at over $1 million. Printing can be up to $100,000 and various fees can range up to $30,000. And these fees do not include your time and the time of your companyís management.
Now, to be fair, you will probably have a fairly good idea of the cost of these advisors before you take the plunge and you will have evaluated the benefit of taking your company public. The ranges you see are wide because of the many variables you might encounter. These include the complexity of your business and what it takes to fully disclose the financial prospects of your business. Will you have audited financial statements from a firm willing to sign off on a public offering? Oh, and by the way, will the underwriters accept your current auditor or will they require one of the major accounting firms to report on the financial statements? More likely than not, the underwriters will require a major firmís opinion. Again, these are just a few of the many cost considerations in the process of going public.
Once you are there, living life as a public company can be expensive. You will have annual filing fees to contend with and higher audit and legal costs. The cost of keeping your shareholders informed of the financial status and other major events affecting the company will be substantial. Donít forget the annual report you will be required to issue. Oh, and those board meetings at the local restaurant between a few intimates will give way to formal board meetings of paid directors.
Do all of these figures have you running for cover? Letís hope not because going public is the right decision for some companies. The cost of taking your company public can be high and ongoing compliance with securities laws will be high, but they could be worth it. So what do you think? Is a public offering in the cards for you? Think about it and let us know if we can help you in any way with your accounting and business needs.
Have a terrific March.