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The $900,000 Tomes That No One Really Wants to Read

wsj

Companies lavish time and money on IPO prospectuses that are “kind of going the way of the dodo bird.”

Aspiring public companies print far fewer copies today than they used to.Premium
Aspiring public companies print far fewer copies today than they used to.

In this year’s biggest initial public offering, semiconductor designer Arm Holdings raised around $5 billion in September. One mundane task on its path to IPO riches was the prospectus—the lengthy documents required by U.S. regulators for aspiring public companies.

The roughly 200-page document included a description of its business, audited financial statements and boilerplate legal language about the risks of investing in its shares. The company had to navigate arcane Securities and Exchange Commission rules about formatting and get the placement of the banks involved just right on the prospectus cover.

Its team rushed over Labor Day weekend to get it done—despite the fact that almost no one would read it in full. Estimated total cost for drafting and printing: $900,000.

Putting together the prospectus has long been a rite of passage for pre-IPO companies. For years, companies dutifully printed up thousands of copies for bankers to share as they made the rounds drumming up investor interest.

Today, most of those meetings are virtual and companies print far fewer copies. While investors do pounce on newly filed prospectuses, most pluck out the key figures while skimming digital copies. But the most boring book in the world lives on.

The business has been a moneymaker for the unassuming printer that handles most of the jobs. Donnelley Financial Solutions, which did Arm’s printing job, says it has worked on prospectuses for around 70% of all sizable U.S. IPOs over the past six years.

This year’s jobs have included two other hotly anticipated debuts: grocery-delivery company Instacart (which didn’t print any paper copies and had estimated prospectus expenses of $161,189) and sandal-maker Birkenstock ($900,000).

Donnelley’s services include formatting and project management, and it is known among IPO lawyers for guiding companies through the quirks and regulatory requirements that make for a smooth filing with the SEC’s Edgar system.

In the early aughts, a large technology company might print as many as 35,000 copies of its prospectus, according to Craig Clay, president of global capital markets at Donnelley. The SEC stopped requiring print copies in 2005, and these days around 100 copies is more standard. That’s how many Arm printed, and those were given as keepsakes to executives, board members and advisers. A person close to Arm said only about 20% of the $900,000 cost went toward actual printing and that it paid extra to have it completed over the holiday weekend.

Even as companies print fewer copies, the estimated prospectus expenses, called “printing fees and expenses" or “printing and engraving expenses" on regulatory filings, are holding relatively steady.

Much as IPOs have evolved from pure capital raises to marketing extravaganzas, the prospectus has evolved over the years from a nondescript black- (or blue-) and-white document to a company’s coming-out party.

“It’s a way to take the regulatory requirement from the SEC and wrap it with some personality," said Clay. That includes paper versions—though the new designs come through on PDFs, too.

When fintech firm Square ($450,000), now called Block, went public in 2015, it opted to put its prospectus in a square shape. In print, the prospectus unfolded to reveal multiple colorful photo spreads.

Pinterest ($850,000) spent around six months turning its prospectus into “an inspirational experience," with cardstock paper and lots of high-quality photos, according to Jane Penner, the company’s former vice president and head of investor relations. Roughly 100 pages in, Pinterest included a colorful illustration of how users can “pin" a recipe on its platform.

“Prospectuses now feel like a catalog for the company," she said. In a previous job, Penner worked on the prospectus for Chinese e-commerce giant Alibaba’s IPO ($1 million, one of the most expensive on record), which made a splash by making its cover page entirely orange in 2014.

Five years later, ride-sharing company Lyft ($320,000) unveiled an all-pink cover page for its prospectus.

Allbirds CEO Joey Zwillinger recalls when the shoe and clothing company was preparing to go public. Covid-19 was in full swing and investor pitches were mostly on camera, so the company known for its wool sneakers only printed a handful of copies of its prospectus, spending $225,000.

Still, his team was hyper-focused on ensuring the document had high production value, including flashy photos that illustrated the materials and comfort of the shoes, and crisp charts touting how the company keeps its carbon footprint down.

Company executives begin fretting over which pictures to include in the first few pages of their prospectus months in advance, while bankers quibble over the font size and position of their firm’s names on the front cover of the prospectus. If the deal is led by Morgan Stanley bankers, chances are the document is printed not in black type but “Morgan Stanley blue."

The format of a prospectus has even spawned some of Wall Street’s most widely used terms. Being “lead left" on an IPO, which denotes the bank with the top role on an offering, comes from the placement of a bank in the top, left-hand position on the cover page. And “bulge-bracket bank," which refers to large, full-service banks such as Goldman Sachs and JPMorgan Chase, comes from the underwriter names listed in the biggest font size, many advisers say.

Every IPO veteran has a prospectus tale. Renos Savvides recalled schlepping boxes of prospectuses across Manhattan as a young banker for companies including Oasis Petroleum ($375,000), which debuted in 2010. Now, as head of equity capital markets at investment firm Neuberger Berman, he favors PDF versions—but even then rarely reads to the end.

“The physical labor I’m sure is not missed," he said of many companies’ decisions to print fewer copies.

“These things are kind of going the way of the dodo bird," said Jonathan Curtis, who has looked over more prospectuses than he can count in his many years as an investor. Curtis, director of portfolio management at Franklin Templeton’s Franklin Equity Group, said in the future he expects investors to feed digital prospectuses into language learning models like ChatGPT to do things like help distill multiple pages of risk factors into a paragraph.

“If I’m being presented with a highly produced prospectus, I think maybe management teams are focused on the wrong thing," he said.

Write to Corrie Driebusch at corrie.driebusch@wsj.com

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