Key Factors to Consider When Choosing the Right Banking Partners for Your IPO Success
Bookrunners play a crucial role in the execution of a successful IPO. While CEOs have many priorities when preparing for an IPO, selecting the right lead bank(s) is a critical decision that can significantly impact the company's success as a public entity.
Here are some key areas to focus on when evaluating potential bookrunner(s) for your IPO.
Use more than one
We often advocate that clients select more than one bookrunner to leverage the combination of industry knowledge, deal experience, and buy-side relationships. Furthermore, an IPO is an opportunity to broaden existing relationships with banks, which will benefit you post-IPO, particularly in securing research analyst coverage.
Bigger is not always better
In many cases, middle-market banks may offer complementary capabilities and access to buy-side investors. Increasingly, bulge bracket firms and middle-market banks work together as bookrunners.
Cast a wide net
It is critical to evaluate a targeted, yet broad group of investment banks through an underwriter selection process, or "bake-off," to ensure you find the correct partner(s) for your firm.
Balance personality ("fit") and partnership
Selecting bankers and capital markets professionals aligned with your vision is crucial. Bookrunners should effectively convey your story and share your valuation expectations. Their representatives must demonstrate not only confidence in their ability to lead a transaction but also that their team has the capacity to remain focused on your company throughout the IPO process. Ensure your offering will not be competing for firm resources or "mindshare."
Look for experience in your sub-sector
Subsector experience is crucial. Ideal bookrunners have a proven track record of successfully selling similar stories to the buy-side community and executing transactions in your sub-sector. They will know which investors to target, anticipate potential areas of pushback, and effectively communicate your story’s key themes. Banks with significant deal experience have insight into which levers to pull to help achieve the best outcome for your company.
Understand the analysts’ capabilities
Research analysts are vital both during the IPO process and after as you begin life as a public company. Their recommendations and research commentary can significantly impact your stock price. Consider the institutional reputation within the investment community (your primary shareholders) to ensure the analyst can effectively communicate your story to a broader audience.
Consider the strength of the sales force
While bankers, capital markets professionals, and research analysts take center stage, institutional sales teams also play an integral role in executing a successful IPO. A strong sales force helps secure meetings, collect feedback, and coordinate investor follow-up calls with its respective research analysts.
