Conflict of Interest in Investment Banking
February 12, 2025
How Technology is a Game Changer for the BFSI Sector It would be an understatement to say that technology has revolutionized the banking and financial sectors. Right from the day to day retail banking where technology in the form of ATMs (Automated Teller Machines), to the corporate banking where technology is ubiquitous, to the derivatives […]
Sears has been one of the largest retailers in the world for many years now. The company has been in operation for about a century. Sears is one of the most widely known corporations in the world. Finally, in October 2018, Sears is now filing bankruptcy. Many investors were already expecting this move given the […]
It is human nature to plan for rainy days. An individual must plan and keep aside some amount of money for any unavoidable circumstance which might arise in days to come. Future is uncertain and one must invest wisely to avoid financial crisis in any point of time. Let us first understand what is investment […]
Governments across the world have stepped up their fight against cash. Cash is being increasingly viewed as a curse that mankind needs to rid itself of. The goal is to move towards a cashless economy. The closer an economy is towards this goal, the more successful it is considered to be. However, the concept of […]
Infrastructure projects tend to have a lot of financial risks. In many cases, the risks are poorly managed. In fact, incorrect risk management is one of the main reasons behind the delay, which can cause cost overruns in the long term. It is difficult to reduce the total risk that any infrastructure project faces. However, […]
An initial public offer (IPO) is a method of selling securities wherein the entire lot of securities is offered for sale to the general public. An IPO is often used by companies when they want to sell their securities to smaller investment organizations and even retail investors.
In the past few years, IPOs have seen a lot of speculative activity. It is not uncommon for retail investors to just buy shares in an IPO even though they have no intention of keeping these shares in the long run. This leads to a pump and dump effect on the IPO prices.
In order to mitigate this, investment bankers often help their clients undertake a pre-IPO placement. In this article, we will understand what a pre IPO placement is and how it affects the success of an IPO.
Pre-IPO placements, as the name suggests, are private placements that happen just before an IPO is about to be launched. During these placements, investment bankers approach large institutional investors with the stock of their client. In order to induce them to buy the stock, pre-IPO placements happen at a price that is lower than that of the IPO. These transactions often have a lock-in period, and the buying investor is not allowed to sell their shares on the open market for a period of time after the IPO has taken place. In most cases, this lock-in period is for one year.
Pre IPO placement methods are widely used by investors. This is because they offer many distinct advantages. Some of them have been listed below:
The above-mentioned advantages make pre-IPO placement a tempting option. However, there are several disadvantages of pre-IPO placements as well. They have been listed below:
The bottom line is that pre-IPO is a strategic tool that can be used effectively to manage the IPO process. However, the success of the pre-IPO strategy also depends upon the strength of the network of an investment banker. A weak investment banker cannot successfully pull off a pre-IPO placement.
Your email address will not be published. Required fields are marked *