Some said the auction of Google's shares was a confusing mess, and no one else would attempt another; others said Google's high-profile IPO would encourage more companies to follow in its footsteps.
What actually happened was a lot less extreme. The number of initial public offerings that went the auction route after Google -- including some prominent players such as NetSuite Inc. and stock and mutual-fund research firm Morningstar Inc. -- increased, though not at a breakneck pace. More large investment banks tried their hands at auctions, including Credit Suisse Group and Goldman Sachs Group Inc., although the majority of deals were handled by a single boutique, W.R. Hambrecht & Co. And just when Hambrecht's founder thought they would see more auctions in 2008, the bottom fell out of the IPO market."It's a niche product, but a slightly larger niche," says Jay Ritter, a University of Florida professor who calculates that, before Google, about 1% of IPOs were done through auction. Since then, the market share has grown to about 2%. "Google set the precedent for other underwriters to run auctions, in addition to Hambrecht."
The ideological battles over the best way to manage an IPO remain unchanged since Google, however. Defenders of traditional IPOs -- in which investment banks retain control over both the size and the recipients of share allocations -- say it's the best method to ensure a smooth entry into the market and to place shares in the hands of long-term holders.
Proponents of auctions say they divvy out shares fairly instead of to select investors and ensure that the companies going public raise the most capital possible, instead of "leaving money on the table" when the stock pops on the first day of trading.
Google's decision to go the auction route was heavily influenced by the company's founders, Sergey Brin and Larry Page, and in the years since, the companies most likely to consider taking that route have tended to also be dominated by entrepreneurial individuals who own major stakes in their firms. Morningstar originally registered to do a traditional IPO, and switched to an auction format after founder and Chief Executive Joe Mansueto observed Google's deal.
"I think without Google, it would have been a lot harder to do the auctions we did get accomplished," says W.R. Hambrecht's founder, Bill Hambrecht. "It certainly had an impact."
W.R. Hambrecht had a relative banner year in 2007, completing three auction IPOs, including NetSuite's and a $1.2 billion offering for Interactive Brokers Group Inc. Hambrecht entered 2008 expecting more of the same, and instead the IPO market ground to a standstill after the economy slid. As the market has started to climb back out of its hole in recent months, more companies are starting to prepare to go public -- including those considering an auction."We're talking to a lot of companies, and people are starting to make commitments," says Mr. Hambrecht. "I think we'll start seeing [auction] filings at the end of this year and early next year."
