| This is very unsurprising. The majority of IPOs are underpriced and in some ways the underpricing is a measure of success. There has been a lot of research done on the topic of underpricing for book-built IPOs (like this one). The most popular conclusion I have seen is that it's a form of compensation for the underwriters and their clients. Underwriters pick their best clients who in exchange for doing business with the firm and revealing their "proprietary information," get access to IPOs that are very underpriced. Raising money isn't the singular objective of an IPO. What the issuer wants is the creation of a liquid market for their shares, analysts to follow said market, and to be perceived as a successful company in order to enable follow-on offerings. Raising less money in order to enable these things, especially for the creation of a liquid market and analyst following is well worth it for the issuer. Investors want to be compensated for their research and taking on risk. Underwriters allocate shares to their best customers in exchange for their information. This comment isn't very clear or convincing. Jay Ritter from University of Florida has a lot more information and links on all of the above: http://bear.warrington.ufl.edu/ritter/ipodata.htm and http://bear.warrington.ufl.edu/ritter/ipolink.htm. Basically, leaving no money on the table is much costlier than having the IPO underpriced by ~50%. Groupon is an interesting IPO, not for how much it's stock rose but for the problems in its business model. A much better indicator of how well their IPO went will be the closing prices 1, 6, and 12 months form now. |