There are 6 cost categories associated with an initial public offering — accounting, legal, registration, miscellaneous bills, underwriting, and printing.
Most of these are self-explanatory, but the old term “printing” is misleading. Before the 2000s, IPO “printing” costs referred to the cost of actual printed paperwork, such as registration filings, needed for an IPO. Now, it’s a bit different.
After talking with executives from 5 recent initial public offerings, as well as senior advisors from two auditing firms, it’s clear that printing expenses are a leftover term from the days when printed paper was everywhere on Wall Street.
Today, IPO printing costs refer mainly to the preparation, production, and distribution of formal filings and advertising materials, as well as the cost of marketing agencies that assist with the equity roadshow and travel costs. They are usually recorded as other costs.
Thoroughly, printing costs include resources spent on:
- Advertising materials and agencies
- SEC filings,
- Market exchange filings, and
- FINRA filings,
- Overhead costs needed to support these activities (rent, lighting, water, etc).
Advertising Related Printing Expenses
Advertising related printing expenses consist primarily of direct advertising costs such as pamphlets, placement in major publications via public relations, and online and social media efforts. Before the mid-2000s, IPOs were advertised through physical pamphlets and posters used at roadshows and at institutional investors meetings.
These events hosted company representatives and underwriting partners, who attempted to spread the message that XYZ company would be going public, and that institutional investors should prepare to place bids for the opening price.
Today, the early stages of IPO advertising have gone largely unchanged. Companies and their underwriters typically use digital pamphlets, videos, and articles to explain their goals and garner interest in pre-public bidding.
The difference is cost. Digital pamphlets, videos, and articles all come at a cost. After all, somebody has to make them. These costs are considered advertising-related printing expenses.
The later stages of IPO — where interest from retail investors becomes important — have evolved to a social media centric approach. Companies now use advertising agencies to target retail investors through channels of all kinds, from apps like Acorns and Robinhood to movie ads, TV commercials, and of course, social media.
These initiatives come at a cost, since ad placements seem to hold their value well over time. We include the cost of these ad placements and advertising agencies in printing expenses.
SEC Filing Printing Expenses
Companies going public need to prepare two critical documents:
- the prospectus, and
- the registration document (most commonly the S-1 filing, or F-1 for foreign issuers).
These documents are complex and require contributions from a number of different departments and organizations, which means they require many iterations.
The prospectus is, in summary, an initial explanation of the company and its shares, and often takes an initial form for private sales (or private placements) performed before the IPO.
The registration document is a formal declaration of intent to make the company public by registering shares with the SEC. The document is often digital, but for proofing purposes and physical safekeeping, hard copies become an unavoidable part of the process. The price of these hard copies, as well as the storage and creation of digital copies, are printing costs.
The cost of printing, sharing, and reworking the prospectus and the registration documents are printing expenses. While the initial prospectus may not be held in paper format, when it is filed with the SEC, within the S-1 or not, it still needs to be held in paper format today, at least for safe keeping.
Stock Exchange Filing Printing Expenses
Stock exchanges such as the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) have their own filing requirements, which means they have lots of paperwork to fill out.
For starters, companies must prove that they meet minimum financial standards for listing. This requires they provide detailed historical financial information. In most cases, this information will be digital, since it’s much easier to verify and cross check in a digital format.
Though digital, this financial information requires a significant amount of work. Why? Because of XBRL (eXtensible Business Reporting Language). XBRL is a standardized reporting language for businesses. Because it’s a technical coding language, most financial professionals require support to construct and deliver XBRL reports to the stock exchanges and to the SEC.
In the case of inconsistencies, costs can build up quickly. If the company needs to provide materials for an audit or reconstruct any kind of financial report on an ad hoc basis during the IPO, additional fees paid to those technical profiles to construct such reports can weight heavy on the wallet.
The cost of these technical profiles and the time to construct filings in this format is considered a printing expense.
FINRA Filing Printing Expenses
FINRA stands for the Financial Industry Regulatory Authority. They are mainly responsible for setting rules and governance around financial advisory and brokerage activities. However, they also maintain certain standards for companies going public, including filing fees. While the fees themselves are not consider a printing expense, the cost of producing the documents for FINRA are printing expenses.
Overhead Printing Expenses
As with any business activity, there is a cost associated with providing a space for the team working towards IPO. If you have a team of 10 professionals, they need offices and lights to complete their work.
In most cases, the company does not track these costs separately. Company employees that work towards IPO will not track the time they spend on these projects separately, and the company will not account for/track water and electric consumption among activities surrounding IPO. The simple reason is that they’re small enough to be negligible.
However, companies may use a simple calculation to get an idea for the amount of overhead allocated. For example, they make take a percent of employee salaries, a percent of water, and a percent of electricity, in order to determine the allocation of each “overhead” item to the IPO team.
Conclusion
The precise meaning of printing expenses in an IPO have evolved over time. The switch from a paper-based world to a digital one has made it so the original items associated with printing are obsolete. However, the name stuck, and today an assortment of items are called “printing.”
