This bill directs a study to analyze the direct and indirect costs associated with Initial Public Offerings (IPOs) for middle-market companies and compare them to alternative financing methods.
James "Jim" Himes
Representative
CT-4
The Middle Market IPO Cost Act mandates a comprehensive study, led by the Comptroller General in coordination with the SEC and FINRA, to analyze the direct and indirect costs associated with Initial Public Offerings (IPOs) for small and medium-sized companies. This analysis will compare IPO expenses against alternative financing methods and assess the impact of these costs on capital formation and retail investors. The final report, due within 360 days, must include findings and recommendations for legislative or administrative changes.
New Act Mandates 360-Day Study on IPO Costs for Mid-Sized Companies: What It Means for Growth and Investors
The Middle Market IPO Cost Act isn't about immediate rule changes; it’s about getting the data needed to potentially lower the barrier for mid-sized companies to go public. Basically, Congress is commissioning a deep-dive study to figure out exactly why it costs so much for smaller companies—the ones often called the ‘middle market’—to launch an Initial Public Offering (IPO).
The Fact-Finding Mission: Who’s Doing the Homework?
This study is being run by the Comptroller General of the United States (which is the head of the Government Accountability Office, or GAO), but they can’t do it alone. They are required to team up with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). This three-way partnership is tasked with delivering a comprehensive report to Congress within 360 days of the Act becoming law. Think of it as a policy pressure cooker: a year to figure out a problem that’s been slowing down business growth for years.
Breaking Down the Cost Barrier
The core of the study is to map out every dollar spent when a mid-sized company decides to go public. This isn’t just looking at the obvious fees. The bill specifically requires the study to look at the direct and indirect expenses, which means everything from what they pay underwriters and accountants, to the ongoing costs of complying with state and federal securities laws immediately after the IPO. For a company founder, this is the difference between hiring five new engineers or spending that money on legal compliance.
Crucially, the GAO must compare the cost of an IPO against other ways companies raise money—like taking on private equity or venture capital. This comparison is key because it helps determine if the current IPO process is so expensive that it’s actively stopping companies from raising the capital they need to expand, a concept the bill refers to as ‘capital formation.’ If the IPO process is too costly, companies stay private longer, which has real-world effects.
Impact on the Everyday Investor
The study also has a mandate to look at how these high costs affect retail investors—that’s you and me, the people buying stocks through our 401(k)s or brokerage apps. When smaller companies face massive barriers to going public, they often stay private, meaning the average person doesn't get a chance to invest in them until they are already massive corporations. The study will analyze if these high IPO costs are limiting access to investment opportunities for regular folks.
Furthermore, the GAO needs to analyze historical trends, looking at how things like underwriter fees, the availability of investment research, and post-IPO litigation costs have changed over time. This historical view helps Congress understand if the system is getting better or worse for mid-sized businesses. Once the study is complete, the report will include findings, determinations, and most importantly, recommendations for new laws or administrative changes to fix the problems they find. While this bill doesn't change anything today, it sets the stage for future policy aimed at making the public markets more accessible to the next generation of growing businesses.