NEW YORK-Going public could get a bit easier and cheaper if William Hambrecht succeeds in his
goal, announced last week, to conduct initial public stock offerings on the Internet using an auction to garner
investors.
W.R. Hambrecht & Co., a San Francisco investment bank established a year ago by the co-founder of
Hambrecht & Quist, said it has launched OpenIPO, an electronic, Internet-based system.
The firm, which has $10
million in capital and a staff of 32, is the third company to focus entirely on taking companies public in cyberspace.
The first was Wit Capital, a New York investment bank, that began its services in September 1997 and has since
participated in 50 IPOs. E*Trade Group Inc. launched its services in January.
“Our goal is to identify the next
generation of leadership companies,” said Hambrecht, who is chief executive officer of W.R. Hambrecht and no
longer affiliated with Hambrecht & Quist.
“We developed OpenIPO to take advantage of new technologies
for the distribution of equity securities to their most natural buyers.”
Based on a design by economist William
Vickrey, a Nobel Prize winner, OpenIPO employs a mathematical model that lets the market set the optimal share
price. The system is similar to the Dutch Auction, which the U.S. Department of the Treasury uses to auction 10-year
notes and 30-year bonds.
In a Dutch Auction, there is a single auctioneer and many bidders, and the price of the
securities to be sold is gradually lowered until it meets a responsive bid. By contrast, the Auction Market system under
which securities are bought and sold through brokers on exchanges is a two-sided system involving many sellers and
buyers.
OpenIPO’s system will place every individual or institutional bidder on equal footing, Hambrecht said. By
contrast, Hambrecht contended that most of the allocations of IPOs managed by large Wall Street investment banks
“go to the big institutions, [which are] the brokers’ best clients.
“We’re opening up the process for
groups currently excluded-small institutions and individual investors who have an affinity for the
company.”
He also said W.R. Hambrecht’s underwriting fees would range between 4 percent and 5 percent of
an initial public offering’s dollar amount, versus the industry average of about 7 percent.
In the OpenIPO Dutch
Auction, bidders offering a price above the lowest accepted bid will receive the option to buy the number of shares they
bid for at the market clearing price. This is the price at which the company can sell all the shares it is
offering.
Because every successful bidder pays the same price as the lowest accepted bid, many investors may
ultimately pay less than they bid initially for the shares, according to W.R. Hambrecht.
The new investment bank
said every company that goes public through its OpenIPO will receive continuing coverage by its analysts that will be
published on-line, along with other related information, like competitive analysis and valuations of comparable
companies.
