Role of equity research in IPOs
When a bulgebracket bank underwrites an IPO as a book runner, does the equity research division of that bank typically play any role at all in the process (such as a supporting role)?
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Can't speak to a BB specifically (MM here), but depending on the company (i.e. is it an emerging growth company, which has different rules) the analyst is brought "over the wall" and there is a lot of joint DD with bankers/the rest of the syndicate. Often times in these scenarios the research analyst will be the one who creates the model, provides it to the bankers, and does a lot of analysis work heading up to the IPO. There is no involvement whatsoever in the deal process itself, of course, but there is involvement. So to answer your question, yes, equity research does play a role in the process from a support standpoint.
Lots of messy conflicts of interest involved tho, right? And what can the ER analyst do that the bankers can't? Provide a reality check for valuation (of the stock price) from a purely public standpoint, with no bias from private information and simply the bias from sinking hours of sleepless nights into a deal? Is the analyst 'brought over the wall' usually a sector expert who covers the company?
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ER analysts plays an important role in IPO/ follow on processes where they sometimes have decent influence which would allow bankers to get the deal or role/position of the deals because coverage initiation is part of the package that bankers sell to get get the deal. Moreover, ER can have an impact on the final deal price because ER models essentially need to be attractive (above) IPO price in order for institutional investors to buy into the offering. That said, ER analysts come up with their own numbers but you can bet that bankers would try to nudge/influence by presenting their view. So why ER analysts do this? Well they get paid at the end of the day. While each deal cannot specific tied to ER’s involvement, the bank will allocate more money to the ER department because of IPO/market and analysts who do a lot of deals will get more bonus accordingly. That’s why you see analysts in hot sectors get paid a lot more than others.
Yes, and quite an important role at at that. In addition to the above, this is my perception of the ER involvement / timeline (in Europe)
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