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 |
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.
