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Facebook To Pay IPO Underwriters 1.1 Percent Fee

March 21, 2012

Facebook plans to raise $5bn in an initial public offering (IPO) this year, and will pay its underwriters a 1.1 percent fee, according to a Bloomberg News report on Tuesday citing two sources with knowledge of the company’s plans.

That payout would be much less than Wall Street´s typical underwriting fee of 3 to 7 percent.  The lower fee structure is reportedly due to the prestige of being associated with Silicon Valley’s largest ever IPO, as well as the promise of being bankers in the future to the popular social networking company.

Among Facebook´s 31 underwriters are Goldman Sachs, Morgan Stanley, J.P. Morgan, Bank of America, Barclays and Allen & Co. and 25 others.

Analysts and investment bankers from many of these firms attended a three-and-a-half hour meeting with Facebook executives at the company’s Menlo Park, California headquarters, according to two sources who attended the event.

Facebook Chief Executive Mark Zuckerberg was not present, but most of the company’s top management team were in attendance, including Chief Operating Officer Sheryl Sandberg, Chief Financial Officer David Ebersman and vice president of engineering Mike Schroepfer, who all made presentations during the meeting, according to a source who attended the meeting.

While there was little new information shared about Facebook’s business or operations during the meeting, one of the attendees told Bloomberg the event was a good opportunity for Wall Street analysts and bankers to meet the company´s top executives.

“It was a good first step for establishing a relationship,” said one attendee, who did not want to be identified because they agreed not to discuss the meeting publicly.

Facebook invited the guests back for a follow up meeting in April to review the company´s business in further detail, the source said.

Facebook is the world´s most popular social network, with more than 845 million users.  The company, whose rivals include leading tech giants such as Google and Yahoo, is preparing to raise $5 billion in a long anticipated IPO that could value the company at between $75 billion and $100 billion.

Facebook discussed the number of daily and monthly active users on the site, and highlighted levels of engagement.   However, the company fell short of giving any guidance, according to one attendee.

Analysts asked dozens of questions, some of which focused on how Facebook could generate revenue from its large user base in the future.

Facebook did not provide much information on future monetization plans, the Bloomberg source said.

The company also highlighted recent litigation by Yahoo, saying that it would be filing a response soon.  Ted Ullyot, Facebook’s top attorney, was also present at the meeting.

Facebook discussed how it purchases components to build computer servers itself to save money, one source said.

While IPOs that raise less than $500 million usually generate underwriting fees of 7 percent, the fee percentage typically declines as an IPO grows larger in size.

Last year, for instance, social game maker Zynga raised $1 billion in a December IPO, and generated fees of about 3 percent for its bankers.

Experts say the Wall Street financial firms will accept a smaller fee this time because no one wants to be excluded from an IPO that has attracted such unprecedented publicity.


Source: RedOrbit Staff & Wire Reports



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