A License to Print Money?

Why are financial printers exceeding initial cost estimates?

Are financial printers consistently exceeding the initial estimates they give clients? The answer seems to be yes — particularly for such transactions as initial public offerings, mergers, or debt offerings.

Consider a few examples. When Alibris, an Emeryville, Calif.-based online bookseller, filed an S-1 in preparation for an IPO it later withdrew, its printer estimated that the work would cost from $75,000 to $100,000. According to CFO Steve Gillan, the final bill was more than $250,000. Another company attempted to negotiate a “fixed” price with its printer of $140,000. After the job was completed, the company got an invoice for $230,000.

In yet another case, a work proposal reviewed by CFO magazine indicated that the final invoice would be in the $200,000 to $250,000 range. The actual tally: more than $770,000.

“The attitude seems to be that when you’re going public, there’s a huge influx of cash, so who cares about overpaying on some bill?” says one controller whose printing bill greatly exceeded the estimate. “But from my perspective, that’s the shareholders’ money.”

These are not isolated cases, says John Wert, president of The Maverick Group Financial Print Consultants LLC, a New York-based firm that, in collaboration with the Institute of Management and Administration, advises companies on managing their financial-printing costs. “In almost every case, the issuer’s bill goes well beyond the initial estimate,” he says. (Three companies dominate the financial-printing market: R.R. Donnelley, Merrill, and Bowne.)

According to Wert and others, one issue is that big transactions invariably involve Securities and Exchange Commission delays and last-minute changes from issuers themselves. But the estimates from printers often don’t spell out the high variable unit rates that will apply.

Printers will also sometimes rush customers to get their own documents into the system sooner than necessary. The result is an especially high number of costly changes. “They take advantage of companies’ lack of understanding of the process,” complains one lawyer who works on IPOs and other transactions.

Audits of printing bills also show that errors are common. In several instances, says Wert, clients have asked for supporting documents only to be told that the paperwork had been destroyed. “These bills are just rife with double charges,” he says.

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