Monday, September 12, 2005
What Does Sarbanes-Oxley Mean for Companies That Want to Go Public?
Conventional wisdom has it that Sarbanes-Oxley is preventing companies from going public. While that hasn't been proved--Nasdaq will have more IPOs this year than last year if the trend holds--the regulations have clearly made it more expensive to go public and stay public.
Because public companies need to comply with Sarbanes-Oxley, including the costly rules on internal controls, a company planning an IPO needs to have a cash hoard set aside in advance. It will face higher audit costs, higher insurance costs, and more regulatory-related duties for its staffers.
The added costs of Sarbanes-Oxley are one reason, among many, that IPO-ready companies are now larger and more established than they used to be. Jim McGeaver, chief financial officer of business software company NetSuite, which is based in San Mateo, Calif., notes that 10 years ago when he worked at Photon Dynamics, that company had no trouble going public with $20 million in revenue. "Now that has to be in the $50 million to $75 million range for the investment bankers to even look at you," McGeaver says. "It is just going to mean that companies will go public later in the cycles."
posted by Brian Moran @ 1:24 PM