Photo: Jim via Flickr
Reuters is reporting that the fees to banks on Facebook’s planned IPO could be as low as 1%.If that’s true, it is a stark reminder of who holds the negotiating power in this deal.
Standard IPO fees are 6-7% and for highly sought after or especially large issuances, it’s not unusual for that number to drop in about half.
As Reuters notes, only in particularly extenuating circumstances are IPO fees dropped to 1%. Recent examples include offerings for companies like GM, AIG and Ally Financial when shares were being sold by the government.
But Facebook is in a different class all together and is acting like it knows it. Facebook has previously hinted it might avoid Wall Street entirely and use a Dutch Auction for its IPO. The social networking giant has also been reported to have drafted its own prospectus without banks’ input.
Facebook knows the demand for its shares is matched only by banks’ desire to be involved.
And if fees end up as depressed as Reuters’ reporting indicates, it would seem Facebook offered a bankers a stark choice: accept our terms on the fee or you’re out.
Bankers, ever-mindful of the reputational and league table benefits of the deal, seem to have said yes.
It’s rare that a client can make top tier investment banks compete on price, but that appears to be exactly what Facebook has done.