පූර්ව සංස්ථා ප්රකාශය නිකුත් කිරීමෙන් අනතුරුව පූර්ව ප්රචාරණය ඇරඹෙන අතර එය සති දෙකක කාලයක් තුලදී අවසන් වේ.
ඉන්පසුව පර්යේෂණ විශ්ලේෂකවරුන් (Research analysts) සංස්ථායික ආයෝජකවරුන් (institutional investors) හමුවන අතර ආයෝජකවරුන්ට සමාගම පිලිඹද විස්තර ලබාදීම සිදුවේ එමගින් ආයෝජක වරුන්ට සමාගම පිලිඹද අදහසක් ලබාදෙන අතර ඔවුන් ආයෝජනය කිරීම පිලිඹද තීරණය කිරීමට අවස්ථාව සැලසේ. එම සමාගතිය අවසානයේ බැංකුව විසින් නිකුතුව උදෙසා මිලක් තීරණය කිරීම සිදුකරයි.
<!--Picking Investors to Market To
A bank doesn’t just pick the investors randomly – they select firms based on criteria like:
Brokerage Commissions – If you’re making tons of money from certain institutional investors, they’ll be high on the priority list.
Interest and Track Record – If the firm never does tech investments, for example, the bank may just skip showing them tech IPOs.
Potential Brokerage Fees – If a bank wants to win more business from institutions in the future it might show them a “hot” IPO as a favor.
The equity syndicate, sales, and road show management teams handle this process.
Amending the S-1 Filing
After all this pre-marketing work is done, banks amend the S-1 filing with a revised price range based on feedback from investors.
Sometimes there are dramatic shifts in the price range, but it’s more common to see small moves in one direction or the other.
Once again, since Facebook stock had already been actively traded long before the offering, this part of the process likely wasn’t as interesting for them.
Part 5 – The Roadshow
And now for the fun, exhausting part of the process: management gets to travel all over to meet with investors and market the company for 1-2 weeks.
Sometimes management teams make themselves very open and accessible and go out of their way to win over investors and answer questions.
Mark Zuckerberg took the exact opposite approach, mostly because he could afford to – he could show up to 0 meetings and investors would still be falling all over themselves to get shares.
For normal companies, though, this process is extremely important because orders are also taken at this time – investors can state how many shares they want and what price they’re willing to pay.
Management gets daily updates on what the orders are looking like, and the banks involved in the process all try to one-up each other by claiming that they won the biggest orders from investors.
During this time, bankers keep getting more and more feedback from investors and may further revise the price range – that’s why Facebook changed its own range from $28 – $34 to $34 – $38.
It’s a tricky balancing act because no one wants to leave money on the table – bankers want a higher share price so they can earn higher fees, shareholders who are selling obviously want a higher price, and the company wants as high a price as possible to maximize their cash proceeds.
But if the price range is set too high, bankers may have to revise it downward, which sends a negative signal to the market.
During this time, the company might also increase or decrease the number of shares it’s offering – but if it does that too much (in either direction) it may be taken as a negative sign because investors might think the company doesn’t know what it’s doing with the proceeds.
There’s been a lot of debate over both the size of Facebook’s offering (as a percentage of the company, small, but very high in absolute dollar terms) and the price.
Relatively few companies worldwide are actually worth more than $100 billion USD, sand many observers think that Facebook may be overvalued at its current price range and that growth could be flattening out.
Part of what makes Facebook’s valuation so uncertain is that its future business might be far different from what it looks like today – advertising revenue might not even be significant in 5-10 years and payments, mobile, or something else entirely might take over.
Part 6 – The Pricing Meeting
Once the roadshow is over and the order book is closed, the management team will meet with bankers and decide on the final price of the deal based on the orders received.
If a deal is over-subscribed, the company will price the company at the high end of the range and will do the opposite for under-subscribed deals.
Sometimes management will deliberately price the company at a lower price (leaving some money on the table) so the stock can trade up on the 1st day of trading – always a positive indicator to the market.
Usually companies that tank after the 1st day of trading have a hard time recovering and getting back to their initial price.
Feedback was clearly very positive for Facebook, since it set its price at $38 – the high end of the range.
Part 7 – Allocation
Once the deal is priced, the syndicate team of the banks will allocate shares to investors.
While banks try to allocate to investors who will be long-term holders of the stock, banks may be biased at times to reward investors that generate the highest brokerage commissions (e.g. hedge funds who are trade very actively).
The syndicate team usually works overnight to allocate the deal.
Part 8 – Trading
Once the deal is allocated and everyone has their shares, the stock starts trading and “the general public” can buy and sell shares.
So, How Much Do Banks Earn From All This?
IPO fees typically range from 3 – 7% depending on the size of the company, how well-known it is, and how much extra work and risk banks have to take on to sell it.
Yes, you read that correctly: for a $100 million offering, banks could potentially make $7 million (now you really understand why they make so much money).
But for extremely large offerings the fee drops, and it drops even further when it’s “hot” and everyone wants to be involved.
So Facebook is only paying bankers a 1.1% fee on its offering, which will still equal $176 million when all is said and done.
For bankers, being involved in the largest tech IPO ever is worth far more than even a substantial increase in fees because they market themselves based on their track records.
Are the Fees Justified?
It depends on how much the bankers actually help.
For something like Facebook, the fees are less justified than normal– sure, the bankers help manage the process and do a lot of the grunt work, but who really needs convincing to buy Facebook stock?
The fees are more justifiable for smaller and lesser-known companies that require real selling – and when bankers actually help with addressing key investor concerns and winning more interest in the company.
Back in the day banks used to take on substantial risk themselves by buying the shares first and then re-selling them (“firm commitment”), which they used to justify higher fees.
But this is less common now, so there’s certainly downward pressure on fees.
Will You Be Buying FB Shares?
I’m staying away because great companies don’t necessarily make for great investments.
Also, IPOs have historically under-performed the market by 2-3% – not a great sign if you’re going by statistics.
Of course, by the time you read this the share price will probably have “popped” to a much higher number and I’ll look silly for not having invested.
But we’ll see where things stand after a month, 6 months, or a year.
And if you decide to invest, let us know how it goes and what price you get in (and out?) at.