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The IPO process bookrunners will “scrub” the demand to identify which orders are “real” as opposed to those that have been placed to “game” the allocation process. The overall demand in the order book is known as gross demand, while the actual shares that the bookrunners will look to allocate is known as allocable demand. (d) Pricing, trading and closing The pricing meeting typically includes the company and key selling shareholders, as well as the bookrunners. In advance of the offering, the board establishes a pricing committee to formally approve the offering. When pricing a deal, numerous factors that occurred over the roadshow are taken into account-general market conditions, the performance of the overall market and the company’s peers during the roadshow will all affect levels of pricing and demand. Additionally, new issuance activity and the performance of recent precedent transactions will have an overall effect on the company’s IPO price, either positively or negatively. After reviewing the roadshow summary—which includes an overview of accounts with which management met, the hit ratio/success rate from these meetings and key feedback themes, as well as gross demand, allocable demand and price sensitivity in the order book—the bookrunners will communicate the price per share recommendation to the company and give the pricing committee time to deliberate on the recommendation. The ultimate goal of the pricing recommendation is to achieve the best possible price for the company while allocating to the highest-quality shareholder base and ensuring that the investor base is achieving attractive valuation and will receive an IPO “pop” on the first and subsequent days of trading. It is in the best interests of the company, key beneficial shareholders and the bookrunners that the stock trades well in the aftermarket. Once the company and its pricing committee have formally agreed on an IPO price with the bookrunners, the underwriting agreement is executed by the company, any selling shareholders and the underwriters, pursuant to which the underwriters make a firm commitment (subject to certain customary conditions) to purchase the IPO shares and resell them to investors at the IPO price. The bookrunners begin the allocation process overnight, determining exactly how much stock (if any) to allocate to which accounts. The goal of the allocation process is to create a high-quality, longterm, focused shareholder base for the company. Once allocations to each account have been agreed upon by the bookrunners and the company, the syndicate “breaks” prior to the market opening the day after pricing and allocations are communicated to each of the individual investors. On the first trading day, the NYSE will coordinate a time at which the newly public stock will officially open. The Designated Market Maker (DMM) is responsible for opening the stock at that time. In addition, the stabilization agent is the bookrunner chosen to open the trading in the stock after the offering and to provide support to the stock price. The market will look to the stabilization agent as the syndicate bid in trading support for the offering. The stabilization agent may commit capital to provide liquidity in the common stock market if the stock or market comes under pressure immediately after the offering and can also use the short position created by the IPO overallotment (typically 15%) to repurchase up to 15% of the shares offered in the event the shares fall below the offer price. The IPO will officially close three days after the first trading day of the stock (T+3). At that point, all of the funds will be wired, stock transfers will be completed, the legal documentation will become unconditional and the IPO will officially close. ● 42 NYSE IPO Guide
4 The IPO on-ramp under the JOBS Act NYSE IPO Guide 43
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Contributor profiles NYSE IPO Guide
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Contributor profiles (SEC) register
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Contributor profiles The Children
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Contributor profiles KPMG 345 Park
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Contributor profiles Morrow & Co.,
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