Explanation:
Using a Dutch auction is the best technique because it starts with a high price and drops incrementally until enough buyers exist to meet the demand. A firm commitment would involve an investment bank negotiating a price with the IPO issuer. This negotiated price may or may not be the highest possible price for the IPO issuer, although it does guarantee a completed sale. A best-efforts basis will not provide the best possible price, and a private placement is pre-IPO.
(Book 3, Module 27.1, LO 27.e)
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Question 57
An equity manager works for a large investment bank, and a customer has approached her for a recommendation on how to get the best price on the customer's upcoming IPO. Which of the following techniques should she recommend as the best option?
A
Use a firm commitment IPO structure.
B
Use a best-efforts IPO structure.
C
Use a Dutch auction.
D
Use a private placement approach.
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