2011

Feb
26

How much is IPO?

Disclaimer: Я не эксперт в области проведения IPO. I am interested in this topic, so, decided for myself to understand. It only expresses my opinion and does in no other way can be interpreted.

I want to address the topic of IPO, which are now become fashionable for technology companies. And has always been a tool of raising capital for companies from different industries.

For example take a company Milkiland.
Milkiland N. V. owns 100% in the DP "Milkiland-Ukraine", which combines 10 processing plants and four agricultural, and 75,23% shares of the largest Russian OJSC "Ostankino dairy combine".
Milkiland at the end 2010 year held an IPO on the Warsaw stock exchange, during the placement posted 22% shares of the company and brought about EUR59,41 million.

Now go back a little. To the cost of the IPO.

According to the company ADE Professional Solutions the cost of IPO is:

  • remuneration of the underwriter. The cost of the services is for the European markets in average 3 to 4% of funds raised, for exchanges the United States – from 6,5 to 7%;
  • costs for consultants (legal consulting, audit, PR consulting) from 3 to 6% of the value of the placed shares;
  • the cost of the listing (payment for services exchange). The amount of remuneration depends on the selected stock exchange, but, as a rule, equal to not more than 0,1% of the value of the placed shares. For example, costs, associated with the placement of shares worth up to $100 million, on the London stock exchange are in the order of $60 thousand;
  • the costs of disclosure of information to public investors;
  • the creation of the Department for the preparation of IFRS financial statements. These costs include the cost of recruitment (estimated – to $50 thousand).

We should also consider the indirect costs:

  • the increase in the tax burden by establishing a transparent financial model;
  • tax losses in the change of the legal structure of the company;
  • implementation of corporate information system for automation of process of preparation of financial statements;
  • costs for the reorganization and improvement of corporate governance procedures (payment for services of independent Directors, the development of a code of corporate conduct);
  • the establishment of committees on compensation and remuneration, internal control, as well as investor relations.

The average cost, associated with the placement of shares on the new York or London stock exchanges, be 10% from cost of funds. However, they can be much higher: for example, in the case of Rambler Media costs amounted to approximately 15%, and Highland Gold Mining – 22%.

Back to Milkiland.

At the Interfax, the cost of Milkiland IPO amounted to EUR2. 9M. That is about 5%. Given that the distribution took place in Poland, where the cost of accommodation below the London and USA, and for the upper boundary. We can confidently say that the IPO cost directly varies individually for each company and is portka 5-10% from the attracted sum.

But how much preparation who knows?

Learning stock trading on the NYSE, Nasdaq, Amex

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