IPO and Equity Offerings
This book goes behind the scenes to examine the process of an offering from the decision to go public to the procedures of a subsequent equity offering.
TABLE OF CONTENTS IPO and Equity Offerings
Chapter 11: Allocation, Stabilization and Lockups
The final aspects of an IPO are some of the most important in ensuring that a company's launch as a listed company is successful. Allocation ensures that shares are placed in the hands of long-term investors. Stabilization, when used, can mitigate price volatility in the opening days of trading. Imposing restrictions on the sale of shares by existing holders reduces the risk of overhang that might hold back the shares' performance in the secondary market.
Allocation
Once the securities regulators give the nod, the issuer and bankers set the offering price. In a bookbuilding offer, the lead bank (bookrunner) immediately commences with the allocation of shares amongst the investors who have placed orders. Remember that until the price is set, orders are indicative, not firm. In a fixed price offer, the banks open the subscription period to investors for two days to three weeks, depending on the jurisdiction.
In fixed price offers, there is a risk that insufficient orders for the number of shares on offer will have been placed by the close of the offer. In the UK, this is the point at which the sub-underwriters step in. The sub-underwriters purchase any unsold shares, in addition to any shares that they might have ordered during the offering. This is a relatively infrequent occurrence and most offers are oversubscribed.
In bookbuilding offers, the managers adjust the offering price and number of shares on offer to ensure that there is oversubscription at the time of offering. The advantage of bookbuilding is...
Copyright Ross Geddes 2003 under license agreement with Books24x7
