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Facebook IPO Case Study: Group Project - Investment Banking
Facebook IPO Case Study: Group Project - Investment Banking
Firm (Facebook)
• Would want a successful IPO
• Would like to raise as much capital as possible
• Wants the share price to rise immediately after the IPO and setting
up stage for future secondary offerings
Conflict of Interest of various players
Underwriters,
• Underwriter sought to build relationship with companies in the
hopes of advising them on additional capital raising or potential
mergers and acquisitions.
• The Underwriter allocates and prices shares in sucha a way that it
makes more profits from the commission by setting a high price.
Here, Underwirter’s interest coincides with that of the issuer. In
contrast, when a spread is small, the underwriter sets a low price to
make gains from the underpricing and post IPO reselling of shares in
accordance with investors interests
Investors
• Investors were anxious to buy shares in hot IPOs where the shares
were expected to ‘pop’ on the first day by up to 35%.
Determination of Floor Price, Price Band
• The U/w earned their fees by selling stock to investors.
Investors were anxious to buy shares in hot IPOs where the
shares were expected to pop on the first day by up to 35%. In
case, the issue did not ‘pop’, U/ws were expected to offer price
support, which meant maintaining a floor price which is
minimum price, at which bids can be made for an IPO.
Regulatory: FB’s IPO was under investigation and it was compared to various
Pump and dump schemes . Govt officials called for investigation in following
weeks. Regulators from Wall Street’s Financial Industry Regulatory Authority
announced on may 22nd 2012 that they had begun investigating whether
underwriters of FB had improperly shared information only with select clients
rather than general public .