I am reading case of Air Berlin IPO. It has detail that investors where unhappy as the operating profit was less and company's strategy was not aligned to increase profit. But why did knowing everything did Air Berlin released its IPO that was deemed to be unsuccessful.
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What definition of success are you using here? The company is still around and thus one could say the IPO was successful in terms of raising money to keep operations going.– JB KingDec 31, 2015 at 17:29
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@JBKing I would define a success when IPO is sold out to the extent as imagined by the company board. As you note that here only 2k million was raised as imagined to 1 billion in $.– kinkajouJan 1, 2016 at 5:33
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Is that counting the additional shares that may also be sold in an IPO? Some investment banks may take advantage of additional shares that may also be sold but are an option that the "sold out" could have different levels and this is without getting into the "pop" that some IPOs can have.– JB KingJan 1, 2016 at 6:17
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I don't think the underwriter were going to take any share in berlin IPO case.– kinkajouJan 1, 2016 at 6:40
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I would flag this as a very deeply disguised attempt at homework solution seeking. hbr.org/product/air-berlin-s-ipo/IES206-PDF-ENG– THEAOJan 2, 2016 at 3:29
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2 Answers
Different stakeholders have different views of 'failure'. Maybe from Air Berlin's point of view it was a failure, but technically speaking it is not really possible to 'fail'. As long as all shares were purchased, which is a virtual guarantee since the investment banks who underwrite the IPO by and large must do to some extent, it will always be 'successful'.
A decrease in value of shares immediately after IPO means that the investment bank who did the IPO for Air Berlin didn't match its IPO price with market expectations, causing shorts on the stock, and thus a decline. No failure per se.
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1Wouldn't an IPO where the investment bank is left holding the bag (and having to increase cash in reserves to maintain the statutory or regulatory reserve ratio) be unsuccessful by definition from the bank's point of view? Dec 31, 2015 at 5:35
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4Absolutely. That's my point, more or less, by saying that different stakeholders have different views of failure. Since OP didn't specify which, I included that caveat, though I assumed the reference was to failure from the point of view of the company's who's IPO it is.– alyehoudDec 31, 2015 at 5:44
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Just skimming through the Wikipedia article on airberlin, I notice there is more to the story than simply "airberlin's IPO failed, so they postponed it and did it anyways."
3 points to keep in mind about IPOs:
1) An IPO is the mechanism for taking a private company and setting it up for shares to be owned by "the public".
2) The process of selling shares to the public often allows original owners and/or early investors to "cash out". Most countries (including member nations of the EU) limit some transactions like pre-IPO companies to "accredited investors".
3) Selling shares to the public also can allow the company to access more funds for growth. This is particularly important in a capital-intensive business like an airline; new B737-MAX costs >$110M. New A320neo costs >$105M USD.
Ultimately, the question of a successful IPO depends on how you define success. Initially, there was a lot of concern that the IPO was set up with too much focus on goal #2... allowing the management & owners to cash out.
It looks like the first approach was not meeting good opinions in the market during 2006. A major concern was that the initial approach focused on management only cashing out its shares and no money actually going to the company to support its future.
The investment bankers restructured the IPO, including the issuance of more new shares so that more $ could end up in the company's accounts, not just in the accounts of the management.
If anything, it's still a pretty successful IPO given that the shares were successfully listed, the company collected the money it needed to invest and grow, and the management still cashed out.
