Post IB IPO - Analysts mixed on auction IPO format's prospects
Fri May 4, 2007 5:18pm ET
By Yung Kim
NEW YORK, May 4 (Reuters) - Options-trading firm Interactive Brokers Group Inc. (IBKR.O: Quote, Profile , Research) raised $1.2 billion on Thursday in one of the largest initial public offerings of the year with the little-used auction format.
However, analysts are mixed about whether the successful offering will instigate increased use of the "Open IPO" or Dutch auction pricing run by investment bank WR Hambrecht + Co.
Traditional IPOs are priced and allocated by Wall Street firms, which balance the competing interests of trading clients, issuers and big investors.
In online Dutch auctions, investors bid for shares and the the final price is based on the highest mark at which orders for all the offered shares can be filled.
The auction process allows companies more authority to set the price of the IPO to maximize proceeds with lower underwriting fees, said Jay Ritter, a professor of finance at the University of Florida.
"(Interactive Brokers) gives auctions more credibility," Ritter said. "A successful auction will certainly increase the number of companies that will consider it."
Founded by investment banking dean William Hambrecht, the firm has been involved with 19 IPOs, including work on the IPO of Google Inc. (GOOG.O: Quote, Profile , Research), which conducted a modified Dutch auction and raised $1.7 billion in August 2004.
But the rest of the company's deals have been significantly smaller with varying degrees of success. Only three other WR Hambrecht deals raised more than $50 million since 1999 while only two deals were offered via auction in all of 2006, according to data collected by Ritter.
Interactive Brokers was the biggest auction IPO since Google, in terms of deal value, and the second biggest IPO of the year, behind only the $1.3 billion offering from MetroPCS Communications Inc. (PCS.N: Quote, Profile , Research).
Critics say there are entrenched interests around the old methods. Investment banks charge lucrative underwriting fees, while powerful traders get newly issued shares at a discount that can be cashed in on the first day.
Auctions attract companies looking to buck Wall Street traditions, analysts said.
In the case of Interactive Brokers, the company also has a stake in the investment bank's success, with a total of $19.2 million invested in W.R. Hambrecht + Co. since December 2006, according to documents filed with the SEC documents.
The investment by Interactive Brokers makes up for a relatively small, 1.7 percent or $22.5 million fee collected by the investment bank, said Francis Gaskins president of IPO Desktop, an independent research firm based in Los Angeles.
NO FLOOD
Investors should not expect a flood of companies to file for their own auction IPOs, Gaskins said.
Interactive Brokers, which rose as much as 14 percent in its debut, was a top flight IPO with increasing profits in a growth market that was strong enough to do well regardless of the process, Gaskins said.
"This doesn't open the door for other auctions," Gaskins said. "The only reason they could pull it off is because of its brand recognition... Where was the flood after Google?" |
