PwC report finds 48 percent of CFOs don't anticipate one-time costs of going public

IPO readiness assessment a crucial component to successful IPO execution

 

NEW YORK – Sept. 10, 2012 – A new PwC US survey finds that while initial public offerings (IPOs) provide companies an opportunity to reinvent themselves, many of them embark upon the process without a thorough understanding of the costs, time and complexity associated with both going public and being public.  The survey on managing the costs of an IPO found that 48 percent of participating CFOs with firms that went public in the U.S. in the past several years said the one-time costs associated with their IPOs had exceeded their expectations.  PwC’s report, Considering an IPO? The Costs of Going and Being Public May Surprise You,” details the traps, pitfalls and best practices in understanding and managing costs of an IPO and being a public company.

Henri Leveque, leader of PwC’s U.S. Capital Markets and Accounting Advisory Services practice, said companies frequently underestimate costs of an IPO, as well as the time and complexity associated with executing their offerings.  “At the same time,” said Leveque, “it's critical that companies in the process understand that a successful IPO involves two equally important parallel work streams: going public and being a public company.”

PwC's Leveque added that preparing a detailed analysis of the costs associated with going public and being a public company, will accelerate the budgeting process and make it more accurate, limit surprises throughout the IPO process and provide organizations adequate time to develop the infrastructure that will support the rigors and requirements of life as a public company.

Costs of Going Public

The road to becoming a public company can be long and costly.  Eighty-seven percent of CFOs participating in PwC’s survey indicated that their firms spent more than $1 million on one-time costs associated with the transaction, and as many as 23 percent reported that the costs of taking their firms public had exceeded their expectations by a significant amount.  The survey also revealed that firms are much more likely to be caught off guard by the costs of going public than the ongoing costs of managing a public firm.

The magnitude and scope of IPO costs can vary significantly from offering to offering based on several variables, including the size of the offering, the complexity of the IPO structure and the organization’s readiness to be a public company, according to PwC.  Among the factors impacting the cost of an IPO are direct costs, such as underwriter and printer fees, and certain legal and financial reporting costs, longer-term costs such as capabilities for financial reporting, investor relations and human resource functions, and costs to institute incentive plans for executives.

Based on an analysis of more than 380 IPOs, PwC found that the underwriter discount, legal, accounting and other offering costs can result in substantial expenditures.  For example, one-time legal fees averaged nearly 25 percent of total costs for IPO transactions that raised less than $50 million, while legal fees comprised 18 percent of total costs for transactions that raised between $100 million and $249 million, according to the survey.

Offering costs exclude those that are not directly attributable to the IPO such as restructuring costs incurred to create the legal and organizational structure needed to execute the IPO.  These incremental organizational costs are typically nonrecurring costs incurred in the months or even years leading up to the IPO.  Total incremental organizational costs reported by recently public firms participating in PwC’s survey averaged 42 percent of the total one-time costs, while taking their firms public.

Costs of Being Public

In addition to the costs associated with going public, there are significant expenses related to the “being public” process as well.  As companies think about being public, several factors need to be assessed and considered to ensure private companies are ready to successfully operate in a public environment, the study found.  As most private companies do not have the infrastructure to satisfy the new level of regulatory and reporting rigor, many will incur a series of incremental ongoing costs associated with being a public company.  Specifically, newly public companies often incur costs related to increased accounting, financial reporting and investor relations considerations, financial effectiveness, internal staffing needs, SEC reporting, internal audit and technology support.  Financial reporting, regulatory compliance and incremental auditing costs together can account for an estimated 54 percent of the total ongoing costs directly associated with being public, according to PwC.

Public company reporting requirements often require an organization to add and retain employees who possess skill sets a private company does not have. For example, 84 percent of survey participants hired between one and five new staff members specifically to increase their SEC reporting capabilities. Additionally, an increased focus on financial planning and analysis, internal audit and compliance, legal and technology support results in increased staffing needs for newly public companies.  According to PwC’s survey, 29 percent of firms spent more for internal staffing needs since going public than they anticipated prior to the IPO.

“Achieving a successful IPO requires connecting many pieces of a complex puzzle, some of which are outside of the control of company management and its stakeholders.  Understanding the extensive mix of direct costs associated with the IPO process and the ongoing costs that are integral to operating and maintaining a public company will increase the efficiency of the IPO and, ultimately, help stakeholders avoid surprises and make the most of the new public company’s valuation.  Today’s volatile environment and fierce competition for capital compels you to be ready when the IPO window opens. An independent advisor can reduce surprises, improve efficiency, and reduce time to market,” added Leveque.

To download a copy of the report, visit: http://www.pwc.com/us/deals/cost-of-ipo-september-2012

PwC’s Deals practitioners help corporate and private equity executives navigate transactions to maximize value and returns. In today's increasingly daunting economic and regulatory environment, experienced M&A specialists assist clients on a range of transactions from smaller and mid-sized deals to the most complex transactions, including domestic and cross-border acquisitions, divestitures and spin-offs, capital events such as IPOs and debt offerings, and bankruptcies and other business reorganizations. We help clients with strategic planning around their growth and investment agendas and advise on the business-wide risks and value drivers in their transactions for more empowered negotiations, decision making and execution. Clients can then expedite their deals, minimize their risks, capture and deliver value to their stakeholders, and quickly return to business as usual.

Our local and global deal strength is derived from over 1,400 deal professionals in 21 cities in the U.S. and over 9,800 deal professionals across a global network of firms in 75 countries.  In addition, our network firm PwC Corporate Finance can provide investment banking services within the U.S.

For more information about M&A and related PwC services, please visit: www.pwc.com/us/deals

About the PwC Network

PwC firms help organizations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.

© 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

 

Maggie Nolan
Brainerd Communicators, Inc.
Tel: (212) 986-6667
nolan@braincomm.com