Fees on the Nubank IPO were among the lowest of the year, Bloomberg revealed this week. Of the $2.6 billion the Brazilian fintech’s parent company, Nu Holdings, raised in the operation, only 1.6% are going to its underwriters, which included Goldman Sachs, Morgan Stanley, Citigroup and others.
“Among 490 IPOs in the U.S. so far this year, only three paid a smaller percentage,” Bloomberg noted.
The Brazilian press was quick to report that Nubank got itself “a bargain.” Their term, but it did indeed land a better deal than three other Brazilian fintechs that went public before it did: PagSeguro, which IPO’d on the New York Stock Exchange in 2018; StoneCo, which shed a lot of value since its 2018 IPO; and broker XP, which went public in 2019.
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According to Bloomberg, these respectively paid 2.4%, 3.6%, and 4.3% in fees. The difference is also stark in absolute terms, with Nubank set to pay $41.6 million in commissions and discounts, compared to $83.2 million for XP.
While this might speak of Nu’s bargaining power — and that its exit was one of the hottest operations of the year — it got us thinking: Could it also be a sign of some of the changes we are planning to track in 2022? Let’s explore.
Hot or not
IPO fees are subject to market dynamics. But it’s not merely the total fee percentage that matters; other elements can also show a company’s market strength viz banks competing for its IPO business.
For example, when DoorDash went public just over a year ago, The Exchange noted that the company had “no shares set aside for its underwriting banks to buy at its IPO price.” Normally, underwriting banks get the option to purchase a block of shares at a company’s final IPO price if they so choose. This gives the banks something akin to an avenue to free profit if the company they are helping take public performs well.
Briefly: If underwriting banks secure access to, say, 5 million shares in an IPO, and the company prices at $20 but opens at $30, the banks can lock in a neat $50 million. Obviously, it’s more complicated than that, but illustrative math can deobfuscate.