Thu. Jan 20th, 2022

Cost on the Nubank’s IPO was among the lowest of the year, Bloomberg announced this week. Of the $2.6 billion raised by Brazilian fintech parent company Nu Holdings, only 1.6% will go to insurers, including Goldman Sachs, Morgan Stanley, Citigroup and others.

“Of the 490 IPOs in the US so far this year, only three paid a smaller percentage,” Bloomberg noted.

The Brazilian press was quick to report that Nubank had secured itself ‘a bargain’. Their run, but it did indeed deliver a better deal than three other Brazilian fintechs that went public before: PagSeguro, which went public in 2018; StoneCo, which has lost a lot of value since its IPO in 2018; and broker XP, which went public in 2019.

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According to Bloomberg, they paid 2.4%, 3.6% and 4.3% in fees, respectively. The difference is also big in absolute terms: Nubank will pay $41.6 million in commissions and rebates, compared to $83.2 million for XP.

Subscribe to BestFitnessBands+While this could indicate Nu’s bargaining power — and that his departure was one of the most popular operations of the year — it got us thinking: Could it also be a sign of some of the changes we’re planning in 2022 to follow? Let’s investigate.

Hot or not

IPO fees are subject to market dynamics. But it’s not just the total reimbursement percentage that counts; other elements can also demonstrate a company’s market strength, namely banks competing for its IPO business.

For example, when DoorDash went public just over a year ago, The Exchange noted that the company “had not reserved any shares for its acquiring banks to buy at the IPO price.” Normally, underwriting banks are given the option to buy a block of stock at a company’s final IPO price if they so choose. This gives the banks what appears to be a way of making a profit if the company they are helping to go public performs well.

In short, if underwriting banks get access to say 5 million shares in an IPO, and company prices at $20, but open at $30, the banks can lock in a neat $50 million. It’s obviously more complicated than that, but illustrative math can clarify.

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