A record run of mega-listings is pulling hundreds of billions in fresh equity supply into the market. The fear is that the money to buy it comes partly out of crypto. The truth is more tangled than the timeline suggests. There is an obvious villain in crypto’s rough summer. SpaceX carried out the biggest IPO ever, OpenAI and Anthropic are lining up behind it, and Bitcoin fell through the same window……..Continue reading….
Source: Crypto News
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IPOs generally involve one or more investment banks known as “underwriters”. The company offering its shares, called the “issuer”, enters into a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell those shares. A large IPO is usually underwritten by a “syndicate” of investment banks, the largest of which take the position of “lead underwriter”.
Upon selling the shares, the underwriters retain a portion of the proceeds as their fee. This fee is called an underwriting spread. The spread is calculated as a discount from the price of the shares sold (called the gross spread). Components of an underwriting spread in an initial public offering (IPO) typically include the following (on a per-share basis): manager’s fee, underwriting fee—earned by members of the syndicate, and the concession—earned by the broker-dealer selling the shares.
The manager would be entitled to the entire underwriting spread. A member of the syndicate is entitled to the underwriting fee and the concession. A broker-dealer who is not a member of the syndicate but sells shares would receive only the concession, while the member of the syndicate who provided the shares to that broker-dealer would retain the underwriting fee.
Usually, the managing/lead underwriter, also known as the bookrunner, typically the underwriter selling the largest proportions of the IPO, takes the highest portion of the gross spread, up to 6-8% in some cases. Multinational IPOs may have many syndicates to deal with differing legal requirements in both the issuer’s domestic market and other regions. For example, an issuer based in the E.U. may be represented by the major selling syndicate in its domestic market, Europe, in addition to separate group corporations or selling them for US/Canada and Asia.
Usually, the lead underwriter in the head selling group is also the lead bank in the other selling groups. Because of the wide array of legal requirements and because it is an expensive process, IPOs also typically involve one or more law firms with major practices in securities law, such as the Magic Circle firms of London and the white-shoe firms of New York City.
Financial historians Richard Sylla and Robert E. Wright have shown that before 1860 most early U.S. corporations sold shares in themselves directly to the public without the aid of intermediaries like investment banks. The direct public offering (DPO), as they term it, was not done by auction but rather at a share price set by the issuing corporation. In this sense, it is the same as the fixed price public offers that were the traditional IPO method in most non-US countries in the early 1990s.
The DPO eliminated the agency problem associated with offerings intermediated by investment banks. A company planning an IPO typically appoints a lead manager, known as a bookrunner, to help it arrive at an appropriate price at which the shares should be offered. There are two primary ways in which the price of an IPO can be determined.
Either the company, with the help of its lead managers, fixes a price (“fixed price method”), or the price can be determined through analysis of confidential investor demand data compiled by the bookrunner (“book building”). Historically, many IPOs have been underpriced. The effect of underpricing an IPO is to generate additional interest in the stock and a rapid rise in share price when it first becomes publicly traded (known as an “IPO pop”).
Flipping, or quickly selling shares for a profit, can lead to significant gains for investors who were allocated shares of the IPO at the offering price. However, underpricing an IPO results in lost potential capital for the issuer. One extreme example is theglobe.com IPO which helped fuel the IPO “mania” of the late 1990s internet era. Underwritten by Bear Stearns on 13 November 1998, the IPO was priced at $9 per share.
The share price quickly increased 1,000% on the opening day of trading, to a high of $97. Selling pressure from institutional flipping eventually drove the stock back down, and it closed the day at $63. Although the company did raise about $30 million from the offering, it is estimated that with the level of demand for the offering and the volume of trading that took place they might have left upwards of $200 million on the table.
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