Not all offers are special, warns Ian Williams

It’s hardly surprising the Facebook IPO was ‘unliked’ by millions: it was, after all, milked by many.

Any IPO is a collective enterprise of a high order of complexity, the orgiastic culmination of all that ‘the markets’ stand for. The company’s board, management and staff in finance, corporate communications and IR have to calculate numbers.

The banks, usually in consortia, have to advise and underwrite the issue. Analysts within and outside those banks have to weigh in on the expensively produced documentation – from behind Chinese Walls, of course. Meanwhile, brokers pass on the good news and the financial media relay that good news with gusto.

The feeding frenzy gathers the lawyers, auditors and even corporate printers, which proof and print the documents. Informants who have been involved say there is almost a sense of altruism in the feeding frenzy around an IPO. There is so much free money to be made that few corporate issuers question inflated fees, commissions or printing bills.

That does not imply conscious collective malfeasance, more a case of enlightened self-interest. Management and the board want options and allotments well priced, the banks and exchanges want fees, the bankers want bonuses, the brokers want commissions and the various houses that take allotments of shares want to unload them at a high price. The higher the price, the higher the percentage, so much of the number-crunching will be more commentary than calculation.

In addition, the salaries of the analysts and media people are paid for by institutions, directly in the first case, indirectly in the second, through advertisements. Of course their reputations might suffer from persistently rosy assessments flying in the teeth of reality, but being unemployed does even less for reputations, and that’s what happens to persistent bears.

Anyway, it’s a feature of human nature, especially in the financial sector, to take a Panglossian view and welcome its reinforcement from those around us. Just check the relative proportion of ‘buy’ to ‘sell’ notes.

Perhaps we should also remember Adam Smith’s comment: ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’

An IPO is the ultimate financial get together where almost everyone in the trade meets to… do what? Experience suggests that after the concocted euphoria of the launch, prices tend to drop.

The major institutions will have taken their profits and left the stock in the hands of the mom & pop investors – otherwise known as the investors who did not get the famous calls from analysts advising that Facebook’s stock was grossly overvalued, calls that told institutions with allotments that they should unload.

The last frontier for regulation has to be the IPO process. Who gets an allotment? Is all the information available to all investors?

And can we get some type of sanity clause that does not involve the favored few walking off with a sack-load of loot from retail investors and dupes? Or do I, like Mark Twain on congressmen and idiots, repeat myself?