IPO Analysis of W R Hambrecht Company - Case Study Example

IPO Analysis W.R Hambrecht Company’s underwritten offerings since its foundation W.R Hambrecht Company is an investments banking institution, prominent in the banking sector and leading in the technological inventions, innovation and implementations. Its leading scores in the sponsoring online techniques that have been the driving force for the newly introduced and well performing techniques that are embraced by companies to search for their IPO via efficient application of technologies for online auction/ Dutch auction, a method also known as the OpenIPO, is undoubted. This technique, OpenIPO , was an invention aimed at making pricing and allocation of the IPO share a transparent and an easy-to-do process for the issuers and to do away with any possible conflicts of interests, as may arise, between the sponsors and issuers as had been the predominant case with the former/ traditional IPO. In addition, this company (W.R Hambrecht Company) also provides an option of the traditional technique, as may be the preference of the intended users who wish not use the new online initiatives. Other services such as the venture capital, M&A, market making, proprietary investments, financing of the private placements, and online brokerage businesses, are the traditional services that this institution still provide to ensure undoubted satisfaction levels of its clients. As if this is not enough, W.R Hambrecht Company further supports approximately 36 companies to attain their IPO via their new application (the online auction system) i.e., the Overstock.com and Google.Inc, and other 15 companies to use the traditional style. Strategic considerations for entrepreneurs to evaluate while determining on whether to use Dutch auction or traditional IPO approach to taking a company public W.R Hambrecht Company recommends prior consultations and advisory services, as a method of strategic approach for entrepreneurs to effectively use while making business decisions on whether to use either the traditional IPO or the Dutch auction/OpenIPO. Such decisions have to be made under the premeditated considerations of; their institutions’ goals, pricing, shares allocations, and risks and returns that are linked to any of the options that a company would centralize on. For instance, both OpenIPO and traditional techniques present very different means of allocating their shares. A sponsor has higher priorities in making decisions that promptly determine the amount of shares that can be allocated to whomever suit their recommendations, an authority that is vulnerable to abuse, in the traditional IPO. This has the potential of impacting negatively in case a stock is mispriced. A substantial case is when a sponsor decides to allocate the available shares to individual accounts of business supervisory in other institutions of their business interest, a situation that is efficiently avoidable in the case of Dutch auction/ OpenIPO. OpenIPO does its allocation without malicious considerations such as personal interests in shares allocation. Thus, is guarantees fairness (no spinning) and only allocate shares to bid winners, i.e., those who placed their bids based on the price or higher factors. The second benefit of using the OpenIPO is that it guarantees an open platform for all irrespective of whether an investor is a larger institution or small enterprises, as had been the trend with the traditional IPO shares allocation. Characteristics of the OpenIPO that makes it to override the traditional IPO is that it allows limited incentives for the small investor to purchase shares based on the underwriters’ quoted prices (which are lower), and quickly sell them off to gain a bigger profit margin. A second factor that OpenIPO will help to eliminate will be the possibility of investors to bid too low by ensuring that those who overbid and underbid are sold for the shares at equal prices. This second advantage would help the issuers to earn more, money they would have not realized while using the traditional IPO which in some instances sold their shares when underpriced for those who overbid. An entrepreneur may also make decisions based on the pricing techniques for an IPO share. In this case as well, OpenIPO ensures elimination of the pricing issues of under pricing which eventually allowed investors to benefit more as compared to the issuers, making the initiative more profitable to the investors and insignificant to the issuers. OpenIPO therefore ensure transparency and accountability as may be required of every investors and issuers. Open bids for both the investors and the issuers via the online applications eradicated blind auctions and conflicts of interests since the underwriters are not given privileges of making decisions on who to and who not to allocate shares. A good factor to understand too is the nature of IPO prior to choosing and centralizing on any method. A company may be for the option of gaining higher returns and incurring fewer charges as offered by the OpenIPO. However, an institution may be for the option of lower returns by preferring price volatilities as provided by the traditional IPO because of the exposure of gaining shares’ prices. While other will also go for shares meant for the big investors. Motivations of underwriters in the Dutch auction versus the traditional IPO approach to taking a company public As discussed in the above paragraphs, it means that motivations for the OpenIPO and opposed to the traditional IPO will vary depending on an institution’s approach to the whole idea. The traditional IPO may be a better option for some institutions because it is capable of generation comparatively more returns for an underwriter, although this may only come true after hard work and active involvements. On the other hand, OpenIPO applies technological approach in its strategies of ensuring accessibility by the general public. Tricks used in the traditional IPO are that an increase in demand for the shares calls for a decrease in share prices. OpenIPO, however, calls for no modifications to suit interests of creating demands since buyers’ amounts are considerably higher, hence demands and prices are never demand determinants. W.R Hambrecht Company provides uniqueness in its definition of successful IPO through minimized unpredictability of the prices of shares. This means that investors will be for the option of underwriting an OpenIPO option. In the modern world of technology, a number of big and well performing companies and organizations have shown a big trend of shifting to the Dutch auction as opposed to the traditional IPO because very simple but imperative reasons that are never provided in the traditional IPO. It stands therefore that all institutions should emulate the same trend to help them realize their successful achievement of goals. OpenIPO allows institutions that implement it to enjoy the privileges of being valued highest and generating comparatively more returns that they never realized while was using the traditional IPO technique. Why diverse mix of companies choose Dutch auction as opposed to the traditional IPO Based on the sizes of the institutions, big companies prefer the OpenIPO because of numerous advantages. Being valued is their first advantage. Since they are also growth stock institutions, they never check on the explosive nature or their share prices; hence always go for trusted stability in the competitive world of inventions and innovations. Such companies have also shown resilience on the inconsistent behaviors of other inventors’, and have now resolved to the application of OpenIPO to help them eliminate this. Operational experiences have it that these companies are never for the publicity as brought about by any alterations on the share prices to companies. Small enterprises, on the other hand, also enjoy the benefits of implementing the use of OpenIPO for reasons that is charges lower fees (minding their levels of returns out of their small enterprises), for the benefit of the underwriters and the companies themselves. Even though underwriters are guaranteed minimal charges, they enjoy the freedom of not having to put in more efforts like in the case of the traditional IPO. Read More