Marketing to Equity Underwriting & IPO Leaders in Investment Banking
- The banks estimate the value of the company so they can set a range for the price of the stock to be offered, and determine how many stock shares will be issued.
- Detailed financial statements about the company are produced that must meet strict SEC requirements. The company’s legal counsels carefully review these documents before submitting them to the SEC.
- The files are then registered with the SEC- this “registration statement” also includes the prospectus, which informs the public of the IPO and contains considerable information about the issuer. Sometimes the SEC requires changes be made to the prospectus so that it meets disclosure requirements. Once the company files the registration statement with the SEC, the quiet period (or waiting period) begins and extends until the SEC staff declares the registration statement effective. During that period, the federal securities laws limit what information a company and related parties can release to the public.
- Up next is the “road show” where the salespeople from the banks travel to educate potential investors about the IPO and to gauge interest in the IPO. These investors provide feedback regarding their levels of interest in the stock and how much they might be willing to pay per share.
- When the company believes they have sufficient demand built up for the stock and what the price of the stock should be, they ask the SEC to declare their registration statement “effective”. The initial stock price is then set.
- Once the SEC declares the registration statement effective, the lead underwriter “allocates” shares to institutional investors.4
“…these six banks pocketed $266 million in total fees from the IPO – an 89% share of the $300 million in total fees paid by Alibaba. Morgan Stanley and Credit Suisse gained the most with revenues of $50.5 million each.” – Forbes on the Alibaba IPO6
1 Liaw K. Thomas. The Business of Investment Banking: A Comprehensive Overview . 3rd ed. Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030.
4 Stowell, David. Investment Banks, Hedge Funds, and Private Equity . 2nd ed. 225 Wyman Street, Waltham, MA 02451, USA The Boulevard, Langford Lane, Kidlington, Oxford, OX5 1 GB, UK: Academic Press, 2012.
5 Liaw K. Thomas. The Business of Investment Banking: A Comprehensive Overview
6 Trefis Team. “Alibaba Hands Out Generous Fees To Investment Banks Involved In Its IPO”. Forbes. October 2014. Accesses 11/20/15, available at: www.forbes.com/sites/greatspeculations/2014/10/01/alibaba-hands-out-generous-fees-to-investment-banks-involved-in-its-ipo
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