Is the IPO Underwriting Discount Always 7% in an IPO?

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June 4, 2012

It's a poorly kept secret that the underwriting discount is negotiable. Although 7% remains the most typical discount in an IPO, the percentage often is lower on large offerings (the underwriting discount was 1.1% on Facebook's $16.0 billion IPO) and higher on small offerings. Set forth below is the median underwriting discount, by offering size, for all US IPOs between 2007 and 2011. Overall, 33% of all US IPOs during this period had an underwriting discount of less than 7%.

Median Underwriting Discount by Offering Size  

Offering Size

Median Underwriting Discount

Percentage of IPOs
By Offering Size

Up to $25,000,000

7.50%

6.0%

> $25,000,000 and ≤ $100,000,000

7.00%

38.5%

> $100,000,000 and ≤ $250,000,000

7.00%

32.8%

> $250,000,000 and ≤ $500,000,000

6.14%

14.8%

> $500,000,000 and ≤ $1,000,000,000

5.50%

5.2%

More than $1,000,000,000

3.31%

2.6%

All IPOs

7.00%

100.0%


If significant inside purchases are made in the offering, the underwriting discount on those shares is usually lower, or may be waived entirely. In addition, underwriters occasionally agree to reimburse a portion of the company's offering expenses, which effectively reduces the underwriting discount. For example, 13% of all US IPOs in 2010 and 2011 combined disclosed underwriter expense reimbursement arrangements, in amounts (for those offerings disclosing the size of the reimbursement) ranging from 0.5% to 20% of the stated underwriting discount.

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Topic:Market Analysis