Retail v Institutional Offer

Question 1

Summary/definitions

Answer 1

Retail: Offer of shares to the public

Ins: Offer of shares to specific sophisticated investors

Question 2

Cost

Answer 2

R: Expensive – must appoint a receiving bank to deal with share applications, advertising

I: Cheaper – shares are offered through an investment bank and broker directly to institutional investors so it is cheaper.

Question 3

Timing

Answer 3

R: Longer to organize (marketing, processing application)
A retail offer can take longer to organise as more marketing is required, plus more time is needed to process the share applications and deal with the allocations.

I: Quicker (as fewer investors who are generally pre-identified), marketing can be focused on institutional investors through the use of roadshows during the bookbuilding process
An institutional-only offer involves fewer investors and the possible investors are identified prior to Launch (unless the institutional offer is a global offer - i.e. one made to investors around the world

Question 4

SH Liquidity

Answer 4

R: Greater liquidity, as larger SH base
A retail offer results in a larger shareholder base as it includes the general public. This means that there is greater initial liquidity in the shares, with more people buying and selling shares at any given time.

I: Less liquidity, as fewer SHs trading in shares
An institutional-only offer results in fewer shareholders holding larger numbers of shares (although there will still be a relatively high number). The initial liquidity in the shares is lower as there are fewer shareholders selling shares.

Question 5

Company Consideration

Answer 5

R: Household name

I: specialist/niche/lesser-known