I realise this may be very simplistic to you but here we go:
Assume I want to raise $100m in an IPO. The underwriter's fees are 2%. Which scenario would apply?
1). I raise 102 million to cover fees in the actual IPO.
2). I raise 100 million but actually get 98 million in my infusion of capital.
3). I raise 98 million and my 2% fees are then calculated, not on 100, but on 98 resulting in a raise of 99.96.
Thanks.
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