It has never been easy to value companies. Auctions are unpopular, but direct listings are beginning to create a buzz in Silicon Valley
”, raised £9bn , which at the time was the biggest-ever initial public offering . It wasn’t just Sid who lit it up. The Thatcher government hired Goldman Sachs to hawkto American investors. As privatisations spread, investment banks such as Goldman used a new technique called book-building to ramp up enthusiasm. Rather than only tapping retail investors, they allocated blocks of shares to money managers such as Fidelity Investments, increasing the pool of capital available.
Notwithstanding Google’s success, auctions are unpopular. Ms Sherman and two fellow academics, Ravi Jagannathan and Andrei Jirnyi, have studiedauctions in at least 25 countries, including Singapore, Taiwan, Turkey and France, and found that they were abandoned in virtually all of them. In Japan they were mandatory in 1989-97. They vanished soon after issuers became free to choose.
Direct listings are now creating a buzz in Silicon Valley. Some big firms favour them because they already have lots of cash on their balance-sheets and have no need to raise more through an. Furthermore, direct listings do not require an underwriter, so are cheaper, and allow the sale of piles of shares quickly. Investors are attracted by higher levels of liquidity than in an. Banks are less keen. The fee pool is lower. Only Goldman and Morgan Stanley have shown much interest.
The chief merit of book-building is that, as Ms Sherman puts it, it allows issuers in effect to buy attention from the market, hence the “legalised bribery”. Money managers know that if they appear at the roadshow and give reliable feedback, they will win for themselves a share of theBut it has never been easy to value companies.
France Dernières Nouvelles, France Actualités
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