August 28, 2007
Auction IPOs Sag
The use of the auction IPO format, featured by W.R.Hambrecht & Co. for over eight years, continues to decline in frequency. So far this year there have been only two. In other world markets, in which their is also a choice between an auction and book building IPO, the auctions have all but been abandoned. Is it a market based preference for book building or are the investment banks working together to kill a practice that reduces their fees?
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I did much of the research that showed that auctions have not been popular around the world, and auctions have usually lost out to a method that had very low fees and high initial returns (first day pops). The choice in most countries was made by issuers, not by the underwriters, and certainly not in some sort of plot to keep IPO underwriting fees high.
Note also, auctions have seldom lost out in a choice with book building, because they usually couldn't last that long. They usually were tried and then rejected before book building was introduced. Auctions have consistently lost out in competition with fixed price public offers, and fixed price public offers have consistently lost out in competition with book building. As a choice of issue method around the world, auctions have come in a distant third.
Posted by: Ann Sherman | Nov 25, 2008 7:25:14 PM