How is an Initial Public Offering C onducted?

Answer 1

IPOs generally involve one or more investment banks as "underwriters." The company offering its shares, called the "issuer," enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares.

The sale of shares in an IPO may take several forms. Common methods include:

Dutch auction
Firm commitment
Best efforts
Bought deal
Self Distribution of Stock

A large IPO is usually underwritten by a "syndicate" of investment banks led by one or two major investment banks (lead underwriter). Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares they sell. Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the IPO, take the highest commissions—up to 8% in some cases.

Multinational IPOs may have as many as three syndicates to deal with differing legal requirements in the home country, the United States and other countries.

Because of the wide array of legal requirements, IPOs typically involve one or more law firms with major practices in securities law, such as the Magic Circle firms of London and the white shoe firms of New York City.

The offering will usually include the issuance of only primary shares, but may also include the sale of secondary shares.