Middle Market IPO Cost Act

Mr. Speaker, I offer a big thank you to the gentlewoman from California (Ms. Waters), the ranking member, and to the gentleman from Arkansas (Mr. Hill), my good friend, for their support of this bill.

I just want to elaborate for a minute on what I think the need is for this bill. This grew out of the work we did many, many years ago on the JOBS Act, in which we observed that the regulatory expenses faced by a company seeking to go public were roughly $2 million to $4 million in size.

It is also true that a small IPO, a medium-sized IPO, anything up to about $200 million, is subject almost always to a 7 percent gross spread. That is 7 percent of the proceeds, or in the case of a $200 million offering, $14 million. On a $150 million offering, it is $10 million, well more than twice the regulatory cost that we identified in working on the JOBS Act.

What is very strange about that 7 percent fee is that, regardless of what period of time you examine, IPOs from about $30 million up to about $200 million are always subject to a 7 percent fee. Now, all of us who observe markets know that that is odd behavior in what should be a competitive market.

This is money, of course, that goes to the investment banks that underwrite these IPOs. I know this because I spent many years working in those investment banks.

The bill here simply says, having done the work that we did on the JOBS Act, what can we do to examine the underlying market forces or nonmarket forces creating this 7 percent gross spread and costs of many, many millions of dollars for companies when they are small and capital is at a premium.

This study, I think, would illustrate some things that would allow us to do even better than we did in the JOBS Act and make it that much more possible, maybe even probable for companies to seek capital in our public markets.

Mr. Speaker, I thank once again the chairman and the ranking member of the committee for their support.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, this bill requires the SEC to study the costs encountered by small- and medium-sized companies when undertaking the initial public offering of their securities to the public, otherwise known as IPO, as well as certain other offerings that are exempt from SEC registration.

When going public, companies tend to hire underwriters, like investment banks, and other professionals, like attorneys and accountants, to help prepare the IPO. Underwriters serving as intermediaries between companies and prospective investors typically receive a set percentage of the IPO price as compensation for their work.

Large companies have in recent years been able to negotiate lower percentages for this process, which reduces their overall fee. At the same time, smaller companies have continued to pay the same historic percentage for this service.

Simply put, this bill sheds light on how much small- and medium-sized companies are paying for their underwriting fees, which will allow these companies to negotiate lower prices.

Mr. Speaker, I urge all of my colleagues to support my friend from Connecticut (Mr. Himes) commonsense measure. I reserve the balance of my time.

Mr. Speaker, I yield 3 minutes to the gentleman from Connecticut (Mr. Himes), the ranking member of the Permanent Select Committee on Intelligence and the sponsor of this bill.

Mr. Speaker, I yield myself the balance of my time to close.

I support Mr. Himes' bill, which will shed light on how much small- and medium-sized companies are paying for their underwriting fees to go public. I hope it will finally put pressure on the SEC to address this important issue for smaller companies.

Mr. Speaker, I again urge my colleagues to support this bill, and I yield back the balance of my time.

Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 3395) to require the Comptroller General of the United States to carry out a study of the costs associated with small- and medium-sized companies to undertake initial public offerings, as amended.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days in which to revise and extend their remarks and include extraneous material on this bill.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise in support of H.R. 3395, the Middle Market IPO Cost Act. Currently, companies have two options for raising capital: an initial public offering, an IPO, or a private offering. Fewer companies are choosing to take the IPO path because of the up-front costs of going public, as well as the high operating costs public companies experience due to SEC reporting rules.

Before a company files for an IPO, they often spend tens of millions of dollars to gather and compile information to submit to the SEC. These mandatory information requirements exclude or dissuade many companies from even considering an initial public offering.

The study required by Mr. Himes' bill will help Congress and the market better understand the costs associated with small- and medium- sized companies going public through the IPO process.

I urge all my colleagues to join me in supporting this bill, and I reserve the balance of my time.

Mr. Speaker, I include in the Record the CBO estimate for this bill.

Mr. Speaker, I reserve the balance of my time.

Mr. Speaker, I urge a ``yes'' vote from both sides of

the aisle, and I yield back the balance of my time.