An initial public offering (IPO) on the stock exchange is a significant process in the life of the company, in the transition from a private company to a public company. The issuance process lasts several months and involves the organization of the company and its management, the selection of underwriters and professional factors (lawyer, accountant, etc.) who will accompany the issuance process.
The issues of the issue for the companies are mainly affected by the scope of the issue and the value of the company, the market situation at the time of the issue, the field of the company’s business and its attractiveness to investors. These factors affect both the demand and the ability to market and distribute the securities, and in addition to all these, they also affect the competition between the underwriters, which may lead to a reduction in commissions.
The TASE publishes for the first time the rate of initial issuance expenses from the consideration in accordance with the scope of the company’s raising and market value, in order to reflect the costs to private companies seeking to issue on the Tel Aviv Stock Exchange and thus enable them to assess the costs required.
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This review details the Company’s initial public offering expenses, based on an examination of the data on 121 initial public offerings of shares on the Tel Aviv Stock Exchange in the years 2020-2021. The main costs are underwriting, management and distribution fees.
Underwriting: A commission for the issuer of the offering, which accompanies the company and assists in the process, and serves as the “insurer” of the offering.
distribution: A commission for distributors who are responsible for marketing the offering among potential buyers.
Issue management: Process management. Most often it will be the underwriter.
Due diligence: Reimbursement of expenses for due diligence performed by the underwriter.
Issue concentration: Payment to the coordinator who is responsible for concentrating the orders received from the investors, and handles the issuance clearing.
Success fees: Some of the issues include the payment of success fees to the underwriter and / or distributors at a certain rate of the issue, at the Company’s discretion. In addition to the costs mentioned, there are additional costs for professional entities, such as the lawyer who accompanies the partner in the process of writing the prospectus, the auditor who audits the financial statements attached to the prospectus, and in some issues also an issuer. It is worth noting that IPO expenses on the Tel Aviv Stock Exchange are significantly lower compared to the United States and Europe.
Details of the costs according to the scope of recruitment in a non-uniform offer
An examination of the total issuance expenses of the companies in a non-uniform offer according to the scope of the raising, it was found that the higher the volume of raising, the lower the issuance expenses (as a percentage of the gross issue consideration). Similarly, underwriting, management and distribution fees – which make up a significant portion of IPO expenses – gradually decrease on average as the volume of raising raises.
A large and sought-after offering creates competition between the underwriters, who will be willing to compromise on the amount of the commission. A large company, which is expected to be in great demand from investors, has greater power in negotiating the level of commissions vis-à-vis the underwriters. In contrast, in relatively small issues, which will be more difficult to market to institutional investors, commissions will be higher than average.
Issuance expenses in raising up to NIS 50 million
The total issue expenses in small issues in which a total of up to NIS 50 million was raised range in most cases from 5% to 11% of the issue consideration, of which underwriting, management and distribution fees range from 2% to 5%. On average, the issue expenses accounted for approximately 7.6% of the issue consideration, of which the underwriting, management and distribution fee averaged approximately 3.6%. To this extent, 29 issues were raised.
Issuance expenses in fundraising of over NIS 50 million up to NIS 100 million
The total issue expenses in raising between NIS 50 million and NIS 100 million range in most cases from 3% to 7% of the issue consideration, of which the underwriting, management and distribution fee is from 2% to 3.5%. On average, the issue expenses accounted for approximately 5% of the issue consideration, of which the underwriting, management and distribution fee averaged approximately 2.7%. At the time of this fundraising, 15 issues were made.
Issuance expenses in fundraising of over NIS 100 million and up to NIS 200 million
The total issue expenses of companies, which raised between NIS 100 million and NIS 200 million, in most cases range from 3% to 7% of the issue proceeds, of which underwriting, management and distribution fees range from about 1.75% to 4%. The issue expenses accounted for an average of 4.6% of the issue consideration, of which an average underwriting, management and distribution fee of approximately 2.7%. Raisings of this height are mostly made by medium-sized companies. In this volume of raisings, 25 issues were made.
Issuance expenses in fundraising of over NIS 200 million and up to NIS 300 billion
The total issue expenses of companies, which raised between NIS 200 million and NIS 300 million, in most cases range from 2.6% to 5.3% of the issue consideration, of which the underwriting, management and distribution fee is from 1.75% to 4%. On average, the issue expenses accounted for approximately 3.8% of the issue consideration, of which the underwriting, management and distribution fee averaged approximately 2.4%. Raisings at this level are mostly carried out by medium-sized companies. 11 issues were made in this volume.
Issuance expenses in raising more than NIS 300 million
The total issue expenses of companies that raised more than NIS 300 million in most cases range from about 2% to 4% of the issue consideration, of which the underwriting, management and distribution fee is about 1.5% to 3%. On average, the issue expenses accounted for approximately 2.8% of the issue consideration, of which the underwriting, management and distribution fee averaged approximately 2.1%.
These high raisings are carried out by very large companies, for which competition is great, and hence the rate of underwriting, management and distribution expenses from the consideration is significantly lower than in the low raisings. 10 issues were made in this volume of raisings.
Characteristics of the issuing company (maturity of seniority, field of activity, financial condition)
Examining the issuing companies according to maturity / seniority and their financial situation, it was found that in many cases where the rate of issuance expenses from the consideration was significantly higher than the average, it was in relatively young companies, in the R&D, technology or biomed phase. Initial sales and have ongoing losses.However, in companies with real activity that already generates revenue, the rate of issuance expenses from the consideration was significantly lower than the average. , A global amount or warrants allotted to it.
R&D partnerships
In the years 2020-2021, 14 R&D partnerships were listed for trading on the Tel Aviv Stock Exchange, 6 of them in a non-uniform offer and 8 in a uniform offer. In the larger partnerships, which raised over NIS 40 million and chose the path of non-uniform offer, the issue expenses ranged from about 4% to 6% of the consideration, of which the underwriting, management and distribution fee was about 3% -5%. The total expenses of the issues in a uniform offer range from about 4.5% to about 7.5% of the consideration, with the management and distribution fee ranging in most cases from 3% to 5%.
Global issues
In the years 2020-2021, four global issues were completed with a foreign pricing underwriter, which were offered to institutional investors abroad and in Israel, in a non-uniform offer. About 7% on average of the issue price (gross) is relatively high compared to non-global issues, in light of the additional expenses involved in a global issue, which include, among other things, translating the prospectus and marketing abroad.
Uniform offer
Of the 121 new issues in the years 2020-2021, 100 of them were made by way of a non-uniform offer, and only 21 issues were made by way of a uniform offer to the public, especially small companies and partnerships, below a value of about NIS 200 million. The total issue expenses of companies with a uniform offer amounted to an average of 7.7% of the consideration, of which about 4.5% was a distribution and concentration management fee.
In companies that did not enter into an early contract with classified investors to purchase units in the offering, the issue expenses amounted to about 7.6% of the consideration, of which about 5% was a management, distribution and concentration fee compared to companies that received an early commitment from classified investors. Management, distribution and concentration of about 3.7% of the consideration and a commission of 3% -2.5% to classified investors on their obligation.