NetSuite went public Thursday in a Dutch auction, meaning its shares were priced through an auction of would-be buyers, not by a handful of investment bankers, as is the process in a traditional IPOs. (NYSE: N)
Bankers tend to under price IPOs by a few bucks to guarantee their clients a quick pop in value on the day the shares debut. Trouble is, the “clients” best-served by old-school IPOs are the institutional investors and wealthy brokerage customers with friends on the bank’s syndicate desk — NOT the hardworking founders of the company, who are made to sell their equity at a discount to give others that instant upside.
Using open bidding, Dutch auctions aim to price equity “fairly.” The idea, first notably used by Google, was actually hatched by veteran Silicon Valley banker, William Hambrecht, of WR Hambrecht & Co. (We’ll interview Mr. Hambrecht on Found|WATCH in January, so stay tuned for more from this thought leader.)
Dutch auctions haven’t gained much momentum yet, but given NetSuite’s performance, they might finally catch on.
Priced at $26, shares soared 77% in their first two days, closing Friday near $39. But this, then, begs our…
Question of the Day:
Despite the Dutch auction, could the post IPO run-up mean NetSuite founder, Evan Goldberg, left money on the table anyway?
One advantage of an auction is that, by minimizing bankers, it cuts down on a company’s IPO fees. Traditional IPOs typically involve a syndicate of ibanks which divide up and “sell” the shares to investors. Not needing a syndicate sale, however, NetSuite selected two banks, Credit Suisse and WR Hambrecht & Co., to handle it’s auction, and then negotiated a low 7% fee, according to TechCrunch. NetSuite sold 6.2 million shares, raising $161 million and (per the deal prospectus) paid its bankers just $9.3 million, much less than if they’d gone with a traditional IPO.)
Most technology founders would love to see their companies go public, especially those of the Rich, rather than King school. The IPO market hasn’t recaptured the heat of the dotcom boom (not a bad thing!), and one hope was that Dutch auctions could be a nice middle ground — a way to monetize value more efficiently, without so much corrupting “froth.” But NetSuite’s IPO can hardly be described as short on hype.
So this motivates our second…
Question of the Day:
If you wish to take your company public, would you ‘Go Dutch’?