Underwriting Agreement

Categories: IPO, Banking

See: Eastern Accounts. See: Underwriter. See: Syndicate.

The investment bank is the underwriter of the offering. Sometimes, deals are fully pre-bought. That is, the bank actually owns that full suite of securities, just before, five minutes later, turning around and selling them to the Street at a few percent or so mark-up in price.

How the deal is marketed (the price expectation, the volumes, the greenshoe, etc.) are all covered in The Rules of the Game doc that is the UA.

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Finance: What is an Underwriter?81 Views

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finance a la shmoop what is an underwriter Undertaker underwriter

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taking your company public well then you need one of these guys and yeah if [Woman writing at a desk]

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things go poorly well then you may need one of these guys but if things go well [Gravestone]

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an underwriter will get to know your company audit your financials give their

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Good Housekeeping Seal of Approval to the investment community with whom they

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deal regularly and introduce you as part of their family selling a piece of your

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company to that world you know hedge funds mutual funds private wealthy [List of benefits that come with an underwriter]

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investors such that they are the you know financial wind beneath your wings [Skyscraper flying away]

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for a brief moment in time the underwriter usually an investment bank

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like the vaunted Goldman Sachs or Morgan Stanley or JP Morgan or UBS or Sumitomo

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will actually themselves own whatever piece of your company you are bringing [Logos for the banks appearing]

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public like if you're selling 18 million shares at 20 bucks the bank's our

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underwriters take a new public will own all 18 million shares having paid you

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$19.60 for them and then turning around five minutes later and selling them for

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20 bucks to John Q invest or making 40 cents a share in spread or markup or in [Spread calculation shown]

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this case 40 times 18 million or 7.2 million dollars just for the pleasure so

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that's an underwriter and if they screw up well yeah and ironically the [Underwriter stamp]

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announcement he'll see in the digital paper is usually in the shape of a

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tombstone announcing everything why a tombstone well because it represents the

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death of ambiguity or confusion in that company's former life as a private one [Gravestone for ambiguity]

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The Undertaker's hopefully have far far away [The Undertaker running away with the word confusion]

Find other enlightening terms in Shmoop Finance Genius Bar(f)