What are the differences in the express to S&S Air if it uses a Dutch auction IPO versus a traditional IPO?
MINICASE
S&S Air Goes Public Mark Sexton and Todd Story have been discussing the future of S&S Air. The company has been experiencing fast growth, and the two see only clear skin in the company’s future. However, the fast growth can no longer be funded by internal sources, so Mark and Todd have decided the time is right to take the company public. To this end, they have entered into discussions with the investment bank of Crowe & Mallard. The company has a working relationship with Kim McKenzie, the underwriter who assisted with the company’s previous bond offering. Crowe & Mallard have assisted numerous small companies in the IPO process, so Mark and Todd feel confident with this choice. Kim begins by telling Mark and Todd about the process. Although Crowe & Mallard change an underwriter fee of 4 percent on the bond offering, the underwriter fee is 7 percent on all initial stock offerings of the size of S & S Air’s offering. Kim tells Mark and Todd that the company can expect to pay about $1,800,000 in legal fees and expenses, $12,000 in SEC registration fees, and $15,000 in other filing fees. Additionally, to be listed on the NASDAQ, the company must pay $100,000. There are also transfer agent fees of $6,500 and engraving expenses of $520,000. The company should also expect to pay $110,000 for other expenses associated with the IPO. Finally, Kim tells Mark and Todd that top file with the SEC, the company must provide three years’ audited financial statements. She is unsure about the costs of the audit. Mark tells Kim that the company provides audited financial statements as part of the bond covenant, and the company pays $300,000 per year for the outside auditor.
Questions 1- At the end of discussion, Mark asks Kim about the Dutch auction IPO process.
What are the differences in the express to S&S Air if it uses a Dutch auction IPO versus a traditional IPO?
Should the company go public through a Dutch auction or use a traditional underwritten offering?
