The IPO market is broken. Here are 10 ideas to help fix it. My latest column for Financial News.
Something has gone horribly wrong when a company like Facebook, which applies terrifying amounts of computer-processing power to revolutionising the way that people interact, is forced to go public in a process that was invented before pocket calculators.
What's not to like?
The failure of the social network’s much-hyped initial public offering – its shares have fallen by 32% since its debut – is described in minute detail by the Wall Street Journal here. But it has also highlighted some of the inefficiencies and idiosyncrasies of the IPO process itself.
While you cannot legislate for market volatility or greed, and you can never entirely eliminate the tension between issuers and investors or between certainty and price, in my most recent column for Financial News I suggested 10 ideas to drag the process into the 21st century.
For the full list with explanations, caveats and commentary, click here
1) Reduce the number of banks involved in an IPO.
2) Require banks involved on IPOs to publish their research on the company.
3) Require companies pursuing an IPO to provide at least some access for analysts at banks not involved in the deal.
4) Film, record and broadcast IPO roadshows.
5) Reduce the size of an IPO prospectus and / or require companies to publish a summary for investors of no more than 100 pages in English, not Legalese.
6) Improve the transparency from bookrunners and investors on the depth of demand for an IPO at different prices.
7) Limit sellers to offloading 25% of their take at an IPO, and force companies to raise new equity when going public.
Limit (or abolish?) the role of independent equity advisers, or at least require greater transparency over their fees and incentives.
9) Apply more processing power to the pricing process, and force banks to be more transparent about the pricing and allocation of shares.
10) Stagger fees paid to banks on IPOs, and subject them to bonus / malus based on relative aftermarket performance.