“London Stock Exchange published our article on the cost of listing in 1986 versus today. You can read it below and also access it here on the LSE webpage
How much did it cost to list and raise money on the London Stock Exchange in 1986, and how does that cost compare to 2021? A possible answer can be found in two very interesting papers published 35 years apart.
The first is a Bank of England paper from December 1986 titled “New issue costs and methods in the UK equity market” [1]. The other is a comprehensive report on the primary and secondary equity markets in the European Union, commissioned by the European Commission and produced by Oxera Consulting LLP in November 2020 [2].
Total Listing Costs
According to the Bank of England the average total cost of a new listing in London via a public offering was about 15.3% of amount raised (Table 1). Figures were calculated on a sample of 57 offers for sale between 1983 and 1986 – most of them under GBP 10m in 1986 money, or GBP 30m adjusted for inflation.
Table 1: Cost of listing as percentage of amount raised in 1986
Source: Bank of England
In 2020 Oxera estimated the financial cost of an IPO in an EU-domiciled venue (including London) to be in the region of 5% to 15% of gross proceeds,“…although this can be higher for those raising smaller sum”.
The Federation of European Stock Exchanges (FESE) estimates the initial costs of listing in Europe to be 10-15% for an IPO of less than EUR 6m; 6−10% for an IPO of less than EUR 50m; 5−8% for an IPO of between EUR 50m and €100m; and 3−7.5% for an IPO of more than EUR 100m [3].
In percentage terms the listing costs are disproportionately higher for small and medium-sized enterprises (SME), making access to capital public markets for those companies more costly and potentially less appealing.
Total IPO costs – 1986 vs 2020 – it’s a draw:
| 1986 | 2020 |
| 15% | Up to 15% |
Direct Listing Costs
The pure direct costs of the listing exclude underpricing, and generally consist of fees paid to the underwriters/ bookrunners, accountants, lawyers, advisers, the listing venue, the regulators, but also service charges by PR firms, financial printers, and other providers of professional services.
In 1986, on the same sample of listings the Bank of England calculated the direct costs of a listing in London to be 10.6% on average (Table 1). On a typical offer for sale (listing) of GBP 7m (approx. GBP 21m in 2021 money) presented in the Bank of England paper these expenses amount to GBP 562,340 (GBP 1.7m today) or 8.0% of total amount raised (Table 2).
Table 2: Expenses on a GBP 7m raise in 1986 (approx. GBP 21m today)
Source: Bank of England
Some 35 years later Oxera estimates the same at 8%, based on an assumed gross deal value of €60m (Table 3).
Looking at a more granular level, in their earlier analysis Oxera found the combined cost of legal expenses, accounting and auditing fees, advisory fees, printing, PR, and other accounted for approximately 3−6% of the funds raised for a typical issuer.
In the Bank of England example from 1986 the equivalent cost items come out at 4.7%, within the range of Oxera’s estimates 35 years later.
Total direct IPO costs – 1986 vs 2020 – again, it’s another draw:
| 1986 | 2020 |
| 8-10.6% | 8% |
Cost of prospectus and how regulations affect it
Often, we hear that producing the prospectus is a costly, complex, and time-consuming process.
Back in 1986 as well as today the prospectus was the central disclosure document a company needed to prepare in order to list. Then as now, producing a prospectus is considered a costly, complex, and time-consuming process for issuers.
The Bank of England in 1986 comments that“…the preparation of the prospectus involves considerable work and cost in terms of accountancy and legal fees.” Years later Oxera further elaborates that the increased length and complexity of the prospectus documentation is part of what many issuers attribute to the high and growing cost of listing.
Though one will often hear that the size and complexity of a Prospectus is the product of growing regulatory requirements (and that the solution is in reducing the regulations and disclosure requirements for issuers), Oxera’s research offers an additional perspective. According to their conversations with issuers the reason for the increased size and complexity lies in the evolution of market practice (and risk averse legal advisers and senior management) rather than the regulatory requirements alone.
Both the Bank of England and the Oxera also conclude that smaller size of the issuance does not necessarily mean less disclosure, a shorter prospectus, or lower cost. In terms of fees for producing the prospectus, Bank of England concludes that this is depended on the complexity of the issue and not directly related to its size; whilst Oxera finds that prospectus length is not proportionate to market capitalisation.
The European Commission has tried to shorten the prospectus and lower the cost by introducing the EU Growth Prospectus which is intended to allow for “lighter disclosure”. Though the use of the Growth Prospectus is still not widespread, Oxera found the feedback from market participants to indicate that the introduction of the SME Growth Prospectus has not resulted in a substantial decrease in the length of the prospectus.
The Oxera paper goes on to explain that although the number of document sections that form part of the EU Growth Prospectus has been reduced by new regulation compared to a normal prospectus, the number of elements included in each section of the prospectus has increased.
Conclusion
Looking at the figures and the persistence of issuer challenges in both the 1986 and 2020 reports it looks, at face value, not much has changed in the intervening 35 years.
Certainly not in terms of the direct costs and fee structures. With so many years of capital markets development and technological progress the stand-out question is obvious: how come we’re still in the same place?
In our experience, the rate of tech adoption in this particular nontrading or “admin” part of capital markets processes has been significantly slower than it has been on the trading side.
We’re determined to change this. We at ScribeStar believe that technology can lower the costs of listing while improving the level of compliance and making the overall process more enjoyable.
Our platform allows listing documentation and transaction management to be done much faster and more efficiently (according to our clients in 50% of the time – watch this video by the London Stock Exchange in the related content section.)
[3]https://fese.eu/app/uploads/2020/03/200224-European-IPO-Report.pdf
[4]https://www.lsegissuerservices.com/spark/scribestar-listing-cost-1986-versus-today
