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September 25, 2014
Alibaba Holds Largest IPO in History
Technology giant Alibaba Group Holding Ltd. recently held the largest IPO in history, raising $25 billion, after underwriters used their right to purchase additional shares.

Technology giant Alibaba Group Holding Ltd. recently held the largest IPO in history, raising $25 billion, after underwriters used their right to purchase additional shares.

Underwriters use over-allotment option
The company generated $21.8 billion in the primary offering, before the financial institutions that facilitated the transaction exercised their over-allotment or "greenshoe" option and bought additional shares for $68 each, Forbes reported. As a result of these banks exercising this option, Alibaba sold 368 million shares, or roughly 14.9 percent of the company.

Global internet giant Yahoo! Inc., Alibaba chairman Jack Ma and vice chairman Joseph Tsai contributed the shares sold in the over-allotment, according to the news source. Ma sold roughly 15.5 million shares in the IPO, 2.7 million of which went to the over-allotment. Tsai sold 5.2 million shares in the offering, with 900,000 going as a result of the greenshoe option.

Twenty-five institutional investors purchased roughly half the shares sold in the primary offering, people familiar with the matter told Bloomberg. Since these securities were held by such a small number of industry participants, fund managers had greater motivation to purchase these securities on their first day of trading, seeking to get in on Alibaba's growing e-commerce market share. This development coincided with Alibaba's shares surging 38 percent on Sept. 19, their first day of trading, the media outlet reported.

Role of underwriters
While Alibaba held the largest IPO in history, it worked with more than 30 underwriters to complete the sale, according to news source. These institutions brought in $300 million in fees, or 1.2 percent of the transaction's value, Reuters reported. Selling shareholders will pay $178.6 million of these fees, while Alibaba will contribute $121.8 million in commissions.

In addition to working with an outsized number of underwriters, the IPO used an atypical fee structure, offering bonuses to help motivate underwriters to produce better results, according to Bloomberg. Whereas most primary offerings use one lead underwriter that gathers a substantial portion of the fees, this sale used five lead banks.

Credit Suisse Group AG, Morgan Stanley, Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. each received 15.7 percent of these fees, the media outlet reported. Citigroup earned 7.9 percent of the total, and the other underwriters took home 1 percent or less of these fees.

Lofty expectations
Alibaba's huge IPO has generated substantial visibility for the company, and Li Muzhi, a Hong Kong-based analyst at Arete Research Service LLP, commented on how global market participants perceive the technology giant, according to Bloomberg.

"Expectations for this company are sky high," Muzhi told the news source. "The market seems to be using Alibaba as a proxy for the macroeconomy and consumer economy."

The technology giant may have plenty of room to grow, as global management consultancy McKinsey predicted that China's e-commerce market will be worth $395 billion in 2015, three times its value in 2011, according to the news source. Alibaba announced in August that during the 12 months ending in June, its retail platforms helped create 6.1 billion package shipments, or 54 percent of the nation's total.

While Alibaba did recently hold the world's largest primary offering, it is one of many IPOs that is happening currently. Companies interested in taking advantage of this activity by providing services to firms holding these primary offerings might consider speaking with Audit Analytics.

Audit Analytics tracks IPOs, Private Placements, auditor fees, auditor changes and more, with the ability to create daily alerts for new disclosures by industry, location, and auditor. Our databases are updated daily and have historical data back to the year 2000. Please contact Audit Analytics for an online demonstration or to learn more about these data sets. You can call us at (508) 476-7007 or e-mail info@auditanalytics.com.

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