Middle Market Deals and how to buy, sell and raise capital from $5 to $500 million

You forgot to tell us what you think of the dutch auction route? Do you think that it makes sense? What are the incentives of the Institutions that take companies public?

Ryan,

You're right. I have more to say--watch for my post in the morning!

ddt

"Overstock.com was among the very first companies to go public using this method in 2002"

You're off by a few decades and a few hundred offerings. More than 20 countries had used auctions for IPOs before 2002, as I show in my paper here:
http://ssrn.com/abstract=874344

Probably the main reason that people aren't aware how many countries have used this method is because, after they became familiar with the method, the countries dropped it. The evidence from all those countries implies that the more familiar issuers are with the IPO method, the less likely they are to use it voluntarily. For example, Japan forced all issuers to use auctions for IPOs for 8 years, but the method vanished as soon as issuers were allowed an alternative.

Think about your description: "The folks who bid higher get the lower price; the folks who bid lower, don't get any shares." What should someone do if they have no clue how much the shares are worth, but they want some? They can jump to the front of the line and yet get shares at the same price as everyone else by bidding high.

But what happens if lots of people bid high? When an auction is opened up to tens of millions of potential investors, surely at least one in 10,000 will eventually come up with this bright idea to game the system. It didn't take them long in Argentina to think of this.

The track record of IPO auctions around the world is pretty bad, and indicates that auctions have simply been too risky for both investors and issuers. And the standard deviation of initial returns for US IPO auctions is huge (about 65% for offerings through Nov. 2005 - I haven't updated since then). The method has been pretty risky for investors so far in the US.