An analysis of accounting and legal fees disclosed by IPO companies shows that these fees have increased dramatically in the past two years, especially in 2013.
About a year ago, Audit Analytics looked at a five year trend in accounting and legal fees related to IPOs. In that post, we noted that average accounting fees decreased from 2008 to 2011, from about $880,000 to about $622,000. This decrease was likely related to fee pressure caused by the financial crisis and its subsequent fallout. In 2012, however, average accounting fees related to IPOs jumped significantly, to about $934,000.
The data from 2013 confirms a new trend. As indicated in the table below, average accounting fees related to IPOs increased to over $1.2 million, a 22% increase from 2012. Total accounting fees related to IPOs are also up significantly compared to 2012, increasing by 87% to about $277 million, which far exceeds the 54% increase in the number of accounting fees disclosed (from 149 to 229).
Legal fees related to IPOs also increased significantly in 2013, with a total of almost $448 million disclosed. This represents an increase of almost 80% compared to 2012, which also exceeds the 54% increase in the number of IPOs disclosing legal fees (from 153 to 236). Average legal fees in 2013 increased to almost $1.9 million, up 17% compared to 2012.
The table below compares the dramatic increases in both accounting and legal IPO fees to the total amount of capital raised by these IPOs. The massive jump in total fees in 2013 (82%) bumps total fees as a percentage of total IPO capital raised1 to just over 1%, the highest it has been in the past six years.
The largest single accounting and legal fees disclosed were by Empire State Realty Trust (ESRT CIK: 1541401), which had about $33 million in legal fees and around $47 million in accounting fees. In its Form S-11 filed on October 1, 2013, the trust showed the following for fees related to the IPO:
Note: Tables may differ from those included in February 2013 blog due to a slight change in our methodology. The change did not materially affect the analysis.
Note 2: IPO amount raised is calculated by multiplying the number of IPO shares by the IPO price for each issuer and then obtaining a total sum.