Auto Segment
Mutual Fund Segment
My Budget
Expert Speak
In Association With
Business Standard

Friends with benefits

Related News

has friended a raft of new underwriters for its forthcoming initial public offering. According to the company’s latest filing, there are now 31 of them, up from an initial six. That may be overkill, but the social network’s clout means it can line up the extra resources and reputational buffing at little, if any, cost.

Mark Zuckerberg’s firm is hoping to sell a lot of high-priced stock - $5 billion or more, with the company valued at up to $100 billion. That’s one reason to bring on board a lot of salespeople with access to different investors. Since 2005, there have been 14 with more than 20 underwriters, according to Thomson Reuters data. had more than 100 of them for its float back in 1986, raising only about $60 million.

That said, has become more concentrated over recent decades, according to research by professors Xiaoding Liu and Jay Ritter of the University of Florida, with fewer banks involved per deal. And technology has made it easier to handle bigger offerings. So Facebook may not really need all its banks. Moreover, there’s no clear relationship with stock performance. Offerings with only 10 underwriters showed similar returns over one day, one month and six months to those with more than 20, according to the Reuters analysis.

Yet there are other reasons to have more of them. The banks involved in an are, essentially, putting their seal of approval on a company and its valuation. Many will produce research afterwards - presumably with a favourable predisposition. And underwriters can’t publish research in the run-up to an offering, which reduces the chance of negative buzz.

For Facebook, there’s another argument, too. The California State Teachers’ Retirement System last month criticised the company for its all-male, all-white board. Rightly or wrongly, adding smaller banks founded and run by women and representatives of minority groups, such as Muriel Siebert & Co and Samuel A Ramirez & Co, may help defuse that controversy.

And with Facebook’s scale, it’s unlikely to cost much, if anything, extra. The company will only pay a fraction of the seven per cent fee underwriters hope for, anyway, because everyone wants in on such a big deal. Some of the new batch of banks may be friends of convenience rather than necessity. But if nothing else, they count as cheap insurance.

Read more on:   

Read More

Historical mistake

UK shouldn't quit the EU - it should join the euro

Recommended for you

Quick Links

Financial X-Ray Rss icon

Vision statement unlikely to boost corporate earning

Markets will find it hard to justify stretched valuations in the face of single-digit earnings growth

Will the Budget deliver big bang reforms?

Economic Survey rules out need for such reforms; analysts believe fiscal tightening, rural stress and political debacle might be restrictive


Back to Top