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The Westwicke Blog is designed to deliver information and insights into the ever-changing world of investor relations and the capital markets, with a specific focus on the healthcare industry.

Selecting Your IPO Bookrunners

Posted on September 3rd, 2014. Posted by

Bookrunners play a significant role in the execution of a successful IPO transaction. Too often, though, a private company CEO does not fully appreciate the importance of selecting the right bank(s) to lead their IPO. It is vital to find the bookrunner(s) with the right combination of capabilities, experience, and “fit.”

Here are seven key considerations for evaluating potential bookrunner(s) for your IPO:

Use more than one
Westwicke often advocates electing to use more than one bookrunner to leverage the combination of industry knowledge, deal experience, and buy-side relationships.

Bigger is not always better
In many cases, middle-market banks may offer complementary capabilities and access to buy-side investors. Increasingly, bulge bracket firms and middle-market banks work together as bookrunners.

Cast a wide net
It is critical to evaluate a targeted, yet broad group of investment banks through a “bake-off” or “underwriter selection process” to ensure you find the correct partner(s) for your firm.

Balance personality (“fit”) and partnership
Finding the right bankers and capital markets professionals that share your vision is crucial. The bookrunner(s) need to articulate your “story” in the manner you want it told and should share similar expectations for the valuation range of your company. The firm’s representatives should demonstrate not only confidence in their ability to lead a transaction but also that their team has the capacity to remain focused on your company throughout the IPO process. It is important that your IPO does not compete for firm resources or “mindshare” from your investment banking counterparts.

Precedent in your healthcare sub-sector
Industry experience at the sub-sector level matters in healthcare. Ideally, your bookrunner(s) have demonstrated historically the ability to sell similar stories to the buy-side community and have executed successful transactions in your sub-sector. Banks with bookrunner experience in your sub-sector will know the right investors to target, anticipate potential areas of pushback, and communicate themes from your “story” that will resonate with the investment community. Banks with significant deal experience have marketed transactions in a variety of market conditions and have insight into which levers to pull to help achieve the best outcome for your company.

Research analyst capabilities
As the adage says, “date the investment banker, marry the research analyst.” Research analysts play a crucial role both during the IPO process and after the IPO, as you begin life as a public company. With the approval of the Jumpstart Our Business Startups (JOBS) Act in 2012, the role of the research analyst during the IPO process has expanded for emerging growth companies (EGCs). After the IPO, research analysts are tasked with helping to keep investors apprised of new developments in your business. Analyst recommendations and research commentary have the ability to move your stock price — either up or down. It is important to consider institutional reputation within the investment community (your primary shareholders), as well as being comfortable that the analyst will do a great job of communicating your story to a broader audience.

Strength of sales force
The importance of institutional sales force is often understated. While bankers, capital markets professionals, and research analysts garner most of the focus, institutional sales also play an integral role in executing a successful IPO. Sales forces help secure meetings, collect investor feedback, and also coordinate investor follow-up calls with their respective research analysts.

Considering an IPO? Westwicke can help you navigate the process of choosing your IPO bookrunner(s) — and a lot more. With nearly 200 years of combined Wall Street experience, our team has helped 22 companies through successful IPO transactions. Read about our approach in our IPO Advisory Guide.

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