The investment bank is primarily responsible for organizing and implementing the IPO. It frequently acts as intermediary between the company and the regulator and it may have to demonstrate to a regulator and/or a stock exchange that the company is suitable for listing.
Principal tasks of the investment bank:
The investment bank generally plays the lead role in the IPO process. If there are several investment banks involved, the investment bank that organizes and runs the offering is commonly referred to as the 'global coordinator'. The global coordinator is responsible for coordinating the preperation of the prospectus, organizing the due diligence and coordinating the underwriting, marketing and distribution of the securities. In smaller offerings, especially where such offerings are not international in nature, the investment bank leading the offering may simply be referred to as the 'lead manager'.
A company generally appoints a single listing sponsor as its lead financial adviser throughout the listing process. While the Listing Sponsor is typically its investment bank, thereby covering both roles, it can also be an advisory firm such as an accountant or corporate finance boutique, which will work alongside an investment bank for the raising of capital. Companies that list on NYSE Alternext are mostly small or mid-sized companies, and so a single investment bank is usually adequate for the amount of capital to be raised. However, the Listing Sponsor and/or the company may suggest partnerships with other investment banks to enhance the potential number and diversification of investors.
In addition to being responsible for the organization and marketing of the IPO, the investment bank may also act as underwriter to the offer, commonly in a syndicate with one or more other investment banks. This ensures that the company and any selling shareholders will sell the total number of shares offered and will raise the amount of money that it or they intend to raise.
Such an undertaking can either be a best efforts undertaking based on market appetite (referred to as a 'soft underwriting') or a firm undertaking to underwrite the securities offered regardless of the market conditions and investor appetite (referred to as a 'hard underwriting'). The underwriters' obligations are contained in an 'underwriting agreement' entered into with the company.
The underwriting agreement will determine the price of the offered shares and the percentage commission charged for doing so. The underwriting agreement will typically be conditional upon the satisfaction of certain conditions, i.e. the outcome of the offering and the payment of the securities. In addition, the underwriting agreement will contain representations, warranties and indemnities to be given to the underwriters by the company that relate to the company's business and the contents of the prospectus.
The investment bank may require the company, and likely any selling shareholders, to abstain from any further sale of shares for a set period following the IPO. This so-called lock-up arrangement can also be included in the underwriting agreement. Finally, the underwriters may request either the company or the selling shareholders to grant a 'green shoe' or 'over-allotment option'. This is a call option, provided to the underwriter, requiring the company to issue – or a selling shareholder to sell – a certain percentage of additional equity to the underwriter for a 30-day period to cover over-allotments.