Discouraged by the cost of meeting U.S. regulations and accounting standards, companies planning initial public offerings are increasingly likely to turn to overseas markets, threatening to further erode the market position of U.S. stock exchanges, according to a survey of leading IPO attorneys by Omnicom financial communications firm Gavin Anderson & Company.
The firm interviewed U.S. attorneys who represented issuers on almost $11 billion of U.S. initial public offerings last year, including some of the year’s largest transactions. The survey found that nearly three-fourths of the respondents believed the U.S. share of global IPOs is likely to decrease, absent any changes in the U.S. regulatory environment.
The risk of securities litigation was seen as a deterrent to companies considering a U.S. initial public offering. But respondents generally dismissed the idea that shareholder activism by hedge funds and other institutional investors made U.S. markets less attractive for issuers. For companies planning an IPO in the U.S. market, the greatest challenges are the costs of developing the infrastructure and meeting the accounting standards of a public company.
“These attorneys confirmed what many IPO clients have told us,” says Richard Mahony, head of the New York office of Gavin Anderson & Company. “U.S. equity markets can offer rich rewards, but the path to an IPO is very challenging. And beyond the IPO itself, companies must be well prepared to meet the everyday demands that come with being a public company.”
“There’s no question that the cost burdens of going public in the U.S. can be significant, particularly for smaller companies,” adds Michael Littenberg, an attorney with Schulte Roth & Zabel who participated in the survey. “It’s a major undertaking for many companies to develop the accounting and compliance infrastructure to meet U.S. public company obligations.”
European exchanges have increased their share of global IPOs by more than 30 percent since 2001, according to the January 2007 report on U.S. financial market competitiveness prepared by McKinsey & Company for Mayor Michael Bloomberg and Senator Charles Schumer.