Selection of Underwriting Syndicate
The underwriter will typically be chosen by its reputation. It may be a large investment bank that has underwritten many public offerings in the past, or it may be a broker-dealer that specializes in a particular industry. Typically, the issuer will choose an underwriter after several pitch meetings, where various investment banks will pitch their services to the issuer.
In some cases, the underwriter selected by the issuer will not want to bear all the financial risk of the offering and will invite other investment banks to join in the underwriting. This group of underwriters is called a syndicate, and each member of the syndicate will be allotted a certain amount of shares that it will be responsible for selling. The underwriter that manages the underwriting is called the lead underwriter.
Prior to a public offering, the lead underwriter will usually collect “indications of interest” from institutional investors, resulting in most of the lead manager’s allocated shares being eventually sold to institutional investors. The