The IPO syndicate members and responsibilities


nowadays every IPO process involves a
plurality of investment banks working on it why is this necessary isn’t it
sufficient to work with a single investment bank well if we have to
answer this question directly no it is not sufficient to work with a single
investment bank there are a number of reasons for that the most obvious reason
is that certain investors prefer working with certain investment banks the more
banks that participate in the so-called syndicate the bigger the chances of
attracting important investors at the same time the syndicate has a clear
hierarchical structure at the top we will have one or two banks who will
assume the role of global coordinators their role would be to oversee the
entire process and Co coordinate the various work streams next we have the
role of the book runners again there can be one two or three banks who will be
book runners oftentimes global coordinators are also active as book
runners in the IPO offering book runners are responsible for the entire marketing
effort the care of analysts presentations roadshow presentations and
are the ones who manage the whole banking syndicate
lastly the banks which are hired as co-lead managers help with the marketing
efforts of the transactions and contribute with their networking and
know-how expertise so these are the three types of roles that investment
banks can have in a syndicate the more important the role of a bank the more
fees it’ll be able to earn in an IPO some of the most reputed banks like
Goldman Sachs do not accept to be hired as co-lead managers as this would be a
hit for their reputation what is the typical breakdown of IPO commissions
then it is 60 20 20 60 is spent for selling Commission’s based on
performance of each of the book runners and co-lead managers the more they sell
the higher the amount of Commission’s that they will learn then 20% will be
split pro rata among book runners for their underwriting efforts and another
20% will be split for among global coordinators for their
management efforts right this is the split structure but what are the actual
fees that are being charged in an average IPO fees are typically in the
range of 1.5 percent to 7 percent with an average of 3% the critical factor
that determined fees is size the bigger the company the lower the percentage
that is applied to the IPO value think of a very big IPO like the one of
Facebook Facebook was able to raise 16 billion dollars when it became public if
we assume that fees were 1.5 percent then this means that the banks in the
syndicate split 240 million dollars a huge amount of money this is why IPOs
continue to be seen as one of the most preferred types of business for
investment banks

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