350 10 Exit of Shareholders
jumped 18% on its debut. This indicates that the Dutch auction failed to create a high
enough price for Google’s shares.^98
Dual-track IPO/trade sale process. Trade sellers and private equity sponsors
sometimes combine an auction process with an IPO process. A dual track
IPO/trade sale process means that the vendor pursues a trade sale through a com-
petitive auction process with trade or financial buyers but switches to the IPO
track with pricing determined by institutions on a bookbuilding basis.
The use of a dual track IPO/trade sale process can bring some benefits. Gener-
ally, the dual track process can increase the chances that the exit will take place. In
addition, prospective bidders have an incentive not only to bid higher than each
other but also to provide an alternative to an IPO. Prospective bidders therefore
have an incentive to close their bids according to the IPO schedule and on clean
exit terms.
On the other hand, there are some drawbacks. Pursuing two parallel processes
means higher transaction costs for the vendor. The IPO process will be compro-
mised unless the vendor can ensure confidentiality of information disclosed in the
sale process. The IPO track can extend the timeline to completion. It can be diffi-
cult to put an offer from a trade or financial buyer on hold after the vendor has
switched from the trade track to the IPO track. It can be difficult to revert back to
the trade sale exit route after pursuing the IPO track. In addition, investment banks
that advise the vendor are biased towards the IPO.
Bought IPO. A “bought IPO” can help to cure some of those drawbacks. A
“bought IPO” is an alternative to a dual track IPO process. In a London “bought
IPO”, the vendor invites an AIM broker to participate in a competitive auction
process. The broker tries to acquire the business or shares for a company that will
immediately apply for a listing on the AIM. This means that the broker is compet-
ing like any other prospective purchaser to acquire the business or shares. A
“bought IPO” is usually fully underwritten by the broker. In order to reduce its
own risk exposure, the broker usually seeks back-to-back commitments from insti-
tutional investors.
An example of such a bought IPO process was the sale by IBS AB, a Swedish company, of
all shares in IBS (Public Services) Ltd, one of its UK subsidiaries. The bought IPO process
included an accelerated IPO process and a trade sale process involving an auction process
with trade and financial buyers. In March 2005, IPO (Public Services) Limited was ulti-
mately acquired by IBS OPENSystems plc, a newly-incorporated, AIM listed company
formed specifically to acquire IBS (Public Services) Ltd. The transaction was conditional
upon admission to listing and trading of IBS OPENSystems plc on the London Stock Ex-
change.
Mandatory auction in deadlock situation. In exceptional cases, the auction sale is
mandatory for the orderly resolution of a deadlock situation. The City Code on
Takeovers and Mergers provides an example.
(^98) See ibid, p 856.