Middle Market Ipo Cost Act

Floor Speech

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Mr. HIMES. Mr. Speaker, I thank the gentleman from California and my friend from Missouri, and I rise in support of this bill, H.R. 2812, the middle market IPO underwriting cost act.

I thank Chairman McHenry and Ranking Member Waters for considering these bills on the floor today, and this bill in particular, which we have been working on for a very long time.

This bill, H.R. 2812, grows out of the work that the Financial Services Committee has been doing for a long time around the JOBS Act, which did good work to reduce the cost and friction associated with a young company going public. At the time, the JOBS Act was estimated to save companies between $1 million and $2 million a year when and after they go public, but the actual cost of going public, except for the very largest companies, as the gentleman from California noted, has not changed at all in many, many years.

Over those years, middle-market companies, which arguably have less negotiating power than some of the very large companies that have been able to force down fees, have experienced a perfectly consistent gross spread of 7 percent. Think about that. The price of going public has never varied from 7 percent. That means that a young company raising a typical $200 million in capital, with a 7 percent gross spread, hands over $14 million to the underwriters. That is a lot of money for a young company.

From 2001 to 2022, 95 percent of U.S. IPOs that raised between $30 million and $130 million had a gross spread of 7 percent. From 1992 to 2017, more than 80 percent of middle-market IPOs had gross spreads of exactly 7 percent.

The cost of the technologies used during the underwriting process have come down dramatically over the decades, but the gross spread has not, so I strongly believe that this remarkably stable 7 percent gross spread is fair subject for scrutiny.

H.R. 2812 very simply asks the GAO, in consultation with the Securities and Exchange Commission, to examine the gross spread and other costs associated with going public to see if we can understand that remarkable stability, what drives it, and what might be done to try to make the market more competitive and, therefore, reduce costs for companies trying to access our capital markets.

Mr. Speaker, I again thank Chairman McHenry and Ranking Member Waters for bringing this bill to the floor today.

Finally, Mr. Speaker, I thank my good friend from Arkansas, Representative French Hill, for all of his thoughtful feedback and suggestions on this bill over the last few weeks.

Mr. Speaker, I urge my colleagues to support H.R. 2812, and I again thank the gentlewoman from Missouri (Mrs. Wagner) and the gentleman from California (Mr. Sherman).

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