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Compare the advantages and disadvantages of using a Dutch Auction to a traditional underwriting method for an IPO.
Dutch auctions have the potential to benefit companies, whereas the traditional underwriting for an IPO tends to benefit the initial investors more. With a Dutch auction, there is an optimization of up-front earnings for the company by taking open blinds from investors without a prior adjustment of the minimum price bid. It is not good for investors because they could find themselves with overpriced stocks in some dormant companies. Traditional underwriting is beneficial for investors because it is rare for anyone to find themselves with unprofitable shares. However, the disadvantage of traditional underwriting is that corporations may lose potential gains from high-bidding investors. A Dutch auction is faster than traditional underwriting, it can fetch better prices for sellers, and can help determine the best asking price. With Dutch auction it can be emotionally taxing for participants, it is not ideal for slow-paced items and might drive prices up for buyers.
The selected company: Academy Sports + Outdoors offered 15,625,000 shares of its common stock at $13.00 per share (Academy, 2020).
The initial price: $13.00
The stock price at the end of the first day of trading: $12.10
The stock price at the end of 10 days of trading: $13.45
The stock price at the end of 30 days of trading: $15.13
The total amount of the offering: $203,125,000
The number of shares offered: 15,625,000
The underwriter: Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC
The fees for the IPO: $8,125,000
IPO evaluation: From the issuer, underwriter, and investors’ perspectives, the IPO was a success. After going public, the corporation reported increases in net sales, income, and gross profit for the year ending January 30th, 2021. Such a change is significantly beneficial for the firm because its financial performance improved tremendously following the IPO. The IPO resulted in net proceeds of approximately $184.9 million after deducting underwriting discounts (Academy, 2021). The rise in stock price from $13.00 to $15.13 by the end of the first 30 days of trading benefited the investors.
Academy. (2021). 2021 Annual Report. Investors.academy.com. https://investors.academy.com/static-files/f0d21b9e-f7f5-4e12-8838-7fbbc47a9437
Academy. (2020). Academy Sports and Outdoors, Inc. Common Stock. Investors.academy.com. https://investors.academy.com/node/6721/html
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