rumours are swirling about investment bankers beating down the Facebook door for a shot at underwriting what will be the biggest IPO in years. The social media company is looking to raise $10 bn on a valuation or $100 bn, and fees to the bankers could exceed $200 mn according to various reports. So, what does it take to win this deal?
Or, let’s ask this question in two different ways:
If you’re planning an IPO, what should you be looking for in an investment bank?
If you’re on the banking side, what will help you win the client?
According to Jon Merriman, CEO of Merriman Holdings, you should keep an eye out for the following:
1. The relationship: by the time a pre-IPO company is picking bankers, it shouldn’t be talking to strangers. If you don’t know the people who are pitching you (or, bankers, if you don’t know the people you’re pitching), it’s too late. These relationships take several years to develop.
Goldman Sachs has an advantage, here, having both invested in Facebook a year ago and sold shares in the company to some of its clients.
2. The sound at the door: hey, CEO and CFO … do you hear someone knocking? It’s probably an investment banker. There’s no substitute for drumming up business the ol’ fashioned way, and that requires a lot of time pushing one’s way into doors that look closed.
3. The market size: distribution helps. A lot. Investment bankers need to know there are people available to buy the stock at the IPO. Investment banks with large distribution networks thus have an edge. For this reason,Morgan Stanley has an advantage heading into the Facebook pitch process, given its substantial retail presence.
4. The track record: nobody likes surprises, and the odds of someone being ‘given a shot’ are incredibly low. Facebook, like most IPO-bound companies, is looking for a leader in the tech IPO space. CEOs and CFOs, in general, should look for investment banks with experience in their sectors. In the case of Facebook, the advantage goes to Morgan Stanley, which led the tech sector in 2011.
5. The analyst: yes, we all remember the analyst scandals from the last dotcom boom, and it appears that some lessons have been learned. This time around, investment bankers need more than a high-profile analyst who can get investors excited and bring in trades, according to Merriman. They also need a banker who is right. There’s no substitute for solid stock-picking.
Source: Washington Post