2. Choice of Underwriter

The main actor in the IPO is the underwriting syndicate (grey box) that orchestrates the placement of the shares, their listing, and the post-IPO trading. The choice of the investment bank that is entrusted with the task of bringing the company public, the so-called lead underwriter, is therefore an important first step in the IPO process. Many factors can affect this choice, including:

  • Overall reputation of the bank
  • Industry experience; prior deals in the same industry
  • Existing business relationship with the issuer
  • Distribution network for the shares, for example, with respect to desired type of investors (private vs. institutional) geographic dispersion of the shareholder base (domestic vs. international), etc.
  • Ability to support the firm after the IPO with equity research, analyst coverage, provision of liquidity.

 

As we have mentioned already, Dropbox has picked Goldman Sachs and JP Morgan Chase, two of the world's largest investment banks, as lead underwriters for its IPO. Several other banks then joined the consortium, primarily to increase visibility and help with the placement of the shares.