IPO expenses likely to ease further this year, say industry players

Investment banking and legal fees, advertisement and marketing, listing fees and brokerage, and selling commission are the typical cost heads incurred by a company for an IPO

The money companies have to spend on going public saw a marginal decline during 2019-20 over the previous financial year. Investment banking and legal fees, advertisement and marketing, listing fees and brokerage, and selling commission are the typical cost heads incurred by a company for an initial public offering (IPO). 

An analysis done by KPMG shows 14 companies spent an average 4.9 per cent of their issue size in FY20, lower than 5.3 per cent spent by 17 companies in the previous year. There are a number of factors that influence issue expense. Bigger the issue size, smaller the expense. 

The KPMG data shows for IPOs smaller than Rs 200 crore, firms spent as much as 10 per cent of their issue size; for those bigger than Rs 2,000 crore, firms spent 2.4 per cent. 

Also, PSUs and private equity-backed IPOs usually incur low expenses. Industry players said issue expenses could tread lower this FY as firms and bankers have shifted to online roadshows, a term for meeting investors, analysts, and brokers ahead of an IPO. 

Pre-Covid, bankers travelled to financial centres like Hong Kong, Singapore, and New York to market an IPO.