Equity Offerings: Structure and Process

Abstract

This chapter analyzes the main features of equity offerings, primarily initial public offerings (IPOs). An IPO is the first sale of a company’s shares to the public and the listing of the shares on a stock exchange. There are several different aspects of an IPO that might be explained. I will not analyze in deep the reasons for going public and the implications of an IPO for the issuing firm, as these are more “corporate finance” topic, while the focus here is on the investment banking perspective. Moreover, while extensive academic research has been dedicated to IPO waves, short-run underpricing, and long-run underperformance, these topics will not be specifically addressed in this chapter. This chapter covers three main topics. First, the offering structure: IPO is a rather generic term, but there are several possible alternatives depending on the kind of shares being sold, where the company is listed, to whom the offer is addressed, etc. Second, how the offering price is set. The price is probably the most important variable in an offering. It is therefore necessary to give a look to different price-setting mechanisms to understand IPOs. Third, how the process of going public works. This means answering several questions, such as: How long does it takes? Who are the actors? How the offer price is determined?