Private companies contemplating an IPO – and small caps debating whether it’s worth it to stay public – sometimes tally up the costs of complying with Sarbanes-Oxley, filing SEC reports, releasing earnings and so on.
Now Ernst & Young has gathered data from 26 companies that did IPOs in the past two years to come up with an answer. As reported in “The True Cost of Going Public” in CFO magazine’s December 2011 issue:
Operating as a public company adds about $2.5 million, on average, to a company’s cost structure, with $1.5 million of that devoted to higher compensation for CEOs, CFOs, and others in the finance function, such as investor-relations professionals, according to the survey. That figure also covers increased board costs, as more than 80% of companies had either added new members to their boards or increased director compensation prior to their IPO.
The accounting firm said companies spent an average of $13 million on advisers to help with the IPO – plus $1 million a year in various other fees for advisers. Where does all this advice come from?
Most companies retained at least 11 third-party advisers in connection with the IPO, the survey found, including, universally, investment bankers, attorneys, and auditors. About 70% of companies hired an investor-relations firm, while 40% hired a road-show consultant.
The benefits of being public vary – among them access to capital, liquidity for founders or venture capitalists, reduced cost of capital, currency for acquisitions, higher visibility and stock-based compensation. All figure in the reasons companies cite for going public and staying that way. Ultimately, each firm and its own shareholders must decide whether the benefits do outweigh the costs.
What do you think: Is being public worth it?