What’s in the Facebook IPO for Goldman Sachs? Money and prestige.
An anonymous Quora user posted this response, and it looks pretty solid.
Let us know if there’s anything you’d change or add.
1. Underwriting fees
Underwriting fees for most US IPOs are 6-7% of the offering size (the value of the shares sold, not the value of the whole company). However, Facebook is an exception because it is likely to be a huge offering and hotly contested. Google’s IPO is probably the best comparable. Fees for the base deal on the IPO were $46MM or 2.8% of the $1.66 Billion offering. I believe the lowest fees ever for an IPO were GM’s which was 0.75% or $118MM on a ~$15 Billion deal, but it was a bit of a special case because of the US Treasury’s involvement. Fees in the $50-150MM range would be expected for a Facebook IPO of several billion dollars. This is split among the banks involved. The same banks are also likely to underwrite secondary offerings after the IPO.
Facebook will easily be one of the largest deals of the year and the banks involved with get credit for the deal in the “league tables” which are the lists of the top IPO underwriting banks
The lead banks in an IPO usually also become the most active brokerage firms for institutional trading of those shares after the IPO. They earn commissions on these trades.
4. Ancillary business
Because share prices generally increase on the first day of trading, allocations of shares in a hot IPO are valuable currency for investment banks to gain favour with important clients (both institutional and wealth management clients). Banks also get ancillary business in the form of investment services that they offer to senior management through their wealth management / private banking arms.