Ryan's comment suggested to me that I should add a bit to my comments about dutch auctions.
Some have written that one of the big advantages of a dutch auction is that lower fees result. Clearly, there is a lot I don't know, but I can't see how lower fees are inherent in this alternative process. Well executed, I don't think there is much difference in the amount of work required--and therefore the costs associated--with one method of distribution over another.
In fact, the role of the investment banker is vitally important and should be well rewarded even in a Dutch Auction IPO. For instance, we had a client a few years ago that spent in the neighborhood of a quarter million dollars preparing software and legal filings to conduct a self managed IPO. Didn't work. Period.
The role of the investment banker is to sell the shares; the primary difference between the methods used by traditional big banks and by W.R. Hambrecht is the means of allocating shares among the investors.
The traditional method has been the source of lots of controversy. The bank creates for itself an incentive to allocate shares to customers with whom it wants to curry favor, therefore creating an incentive for a lower price.
In the dutch auction, the customers drive the allocation by virtue of their bids. Bids rule. No judgment. No incentive for bankers to drive the price down.
As a result, the final offering price in a dutch auction should be higher. This should result in much more meaningful savings to the offering company than a point or two in fees.
That said, if a company can save a few million bucks in fees on a big offering, all the better!
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