In Facebook’s $100 Billion IPO, Bankers Seek Prestige Over Fees

Facebook could file papers for its IPO, or initial public offering of company stock, as early as next Wednesday.

Facebook's IPO, which is expected to raise about $10bn, is set to make its founder Mark Zuckerberg a billionaire several times over. Photo: JD Lasica/Flickr

Morgan Stanley, the US investment bank which played a role in the IPOs of several internet-based companies last year, including LinkedIn, is expected to be Facebook’s lead adviser.

Goldman Sachs, which helped Facebook raise $1.5 Billion at the start of 2010, is also said to have a role, according to The Telegraph.

Jonathan Thaw of Facebook sent an email to ABC News: “Our position on this is that we don’t participate in IPO-related speculation.”

Reports before today said Facebook would likely be valued at $75-100 billion.

Facebook has said it intends to go public, with most analysts expecting the move in the first half of the year. Under US law, the group will have to start disclosing its financial results from April because it has more than 500 investors.

The IPO, which is expected to raise about $10bn, is set to make its founder Mark Zuckerberg a billionaire several times over. The group is thought to be keen to list on the New York Stock Exchange, rather than the more tech heavy Nasdaq.

That has set up a fierce competition on Wall Street, particularly between the presumed front-runners Morgan Stanley and Goldman Sachs Group Inc, which may offer their underwriting services for as little as 1 percent of gross proceeds, bankers and industry observers said.

That would be far less than the 7 percent fee that smaller deals typically fetch, or the 2 or 3 percent that large deals tend to command, Reuters reports.

“The Facebook IPO will be iconic,” said James Montgomery, chief executive of San Francisco-based investment bank Montgomery & Co, which advises tech companies on mergers, acquisitions and private placements.

Facebook can easily negotiate a 1 percent fee for the entire group of investment banks that will peddle its shares, Montgomery said, “much to the chagrin of the underwriters.”

“If it comes to pass, this will be the largest tech IPO in history, yielding around $10 billion for the social network,” wrote Chris Taylor of Mashable. “Google’s 2005 IPO, as big a deal as it was, didn’t even reach the $2 billion mark.”

PrivCo, a US group that studies privately held companies, claimed last night that Facebook was targeting an IPO price of $38 to $40 for its shares, with a target value for the company of $90bn to $95bn.

The company was said to be reluctant to aim for the full $100bn valuation in the hope of leaving some value for investors following the listing.

“There’s no other IPO like this,” said Lee Simmons, a tech specialist at Dun & Bradstreet. “It’s kind of the 800-pound gorilla for the tech sector.”

The Wall Street Journal reported that Facebook plans to file IPO documents with U.S. securities regulators as early as Wednesday, and is close to picking Morgan Stanley as the lead underwriter.

The typical IPO that raises less than $500 million incurs a 7 percent fee – what’s known as “the 7 percent solution.” But as IPOs grow in size, the fee percentage shrinks.

Facebook’s offering will be the largest ever IPO from Silicon Valley, as well as the largest global high-tech IPO since the dot-com bubble burst. The most recent U.S. social-media IPO, Zynga Inc, raised just one-tenth of the proceeds Facebook is hoping for.

“Facebook is one of the most well-known brands around the globe,” said George Papaioannou, a business professor at Hofstra University who has studied underwriting competition among investment banks. “The underwriters will have to do very little convincing to investors, and that gives Facebook a huge negotiating advantage.”

Facebook began in 2004 with Mark Zuckerberg, then a student at Harvard, who joined with a couple of friends (some of them now ex-friends) to find a way for schoolmates to connect online. The idea caught on. Facebook now claims more than 800 million active users worldwide.

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