Mark Zuckerberg has come quite the distance since he first dreamed up his own visage of a social networking site in his Harvard dorm. Never one to fail making new strides toward incredible affluence and global domination, the Wall Street Journal is now reporting that the casual-hoodie advocate looks set to become the CEO of a PLC with a value in excess of $100 billion.
However, on the verge of such a momentous move, some have been quick to step forward and suggest that Facebook should in fact avoid Wall Street altogether for its IPO, instead following the likes of Google and opting for a ‘Dutch Auction’ as an alternative.
It is of course little surprise that the future plans for Facebook have earned considerable interest from Wall Street. Indeed, the idea that the company has every potential to raise upwards of $10 billion by early spring next year has triggered a heated battle between major investment banks to secure a lucrative deal.
Of course, the appeal does not simply begin and end with the massive fees the large IPO would attach, but also the prestige that would come along with being a part of the biggest and most high-profile deal in decades – a priceless claim to fame if ever there was one.
Indeed, bankers are already speaking out about their intended tenacious efforts to secure the deal, with some confidently stating that failure in this instance is simply not an option.
Back with Mr. Zuckerberg, a crucial decision needs to be made between the two options on the table. Opting for a standard IPO would see shares distributed by banks to keen investors who would then gain a percentage share of proceeds, while the lesser-used ‘Dutch Auction’ bypasses the need for Wall Street involvement and instead sees shares distributed in relation to individual prices bid.
What distinguished the two most crucially, aside from the fact that auctions being along much lower fees for the company, is the way in which the Dutch option ensures that banks are not given any say in who does and does not get shares – all investors are given equal access opportunities and therefore conflicts of interest can be eliminated.
In the case of commodities as hot as Facebook, of which there have been relatively few, this can be incredibly important to consider. Deals on such a level are known to bring along massive rises across the early days of trading, therefore in the hands of the banks there is every possibility that their preferred clients would receive the majority of available shares, allowing them to take home the highest profits.
On the other hand, the Dutch option is certainly not free of flaws, hence the reason that they have only been used in as few as 30 cases in recorded history.
Taking the business to the public in the absence of Wall Street can help in some instances, though the majority of others will inherently benefit from major banks lending their brands and intellects to the company so as to really ‘sell’ to investors.
Furthermore, allocating shares to the highest bidders also brings about the possibility of falling value on the first day, which is of course hugely unattractive to executives.