With IPOs, the Opinion Depends on Your Position
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I was intrigued by the article about California underwriters (“Many Young IPOs Don’t Get the Help They Need,” Aug. 26), but I drew completely different conclusions than did your author.
Essentially, underwriters are fee-based consultants working directly for the companies they help take public. Therefore, even if a stock price decreases significantly from the original offer price (assuming the issue was fully subscribed), they did a good job in their primary role, which is to raise capital.
However, underwriters’ secondary motivation is to maintain trading prices at inflated values so their future IPOs will be viewed favorably by investors. To the extent that the rosy investment scenarios they portray after an IPO result in overvalued share prices, it could be said that they are damaging subsequent investors. Underwriters have extreme conflicts when covering their own issues, a fact completely ignored by the article.
Of course, if share prices increase significantly shortly after the IPO, underwriters could be viewed as having left money on the table that properly should have helped capitalize the companies, another perspective omitted from the piece.
As with all investments, opinions depend on your position, and hindsight is the best position of all.
KEITH MAUTNER, CPA
San Diego
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