Page 166 - Initial Public Offering - An Introduction to IPO on Wall Street

10. Syndication

A syndicate is a temporary business partnership that looks to manage a massive transaction that
would be nearly impossible to carry out individually. Syndication makes it possible for firms
to combine their assets and share risks, such as a group of investment banks collaborating to
introduce a new securities issue to the market.

There are various kinds of syndicates including insurance syndicates, banking syndicates, and
underwriting syndicates. Here, we will be focusing on underwriting syndicates and how they
work.

10.1 An Overview of Underwriting Syndicates
Several investment banks and broker-dealers establish a syndicate in an IPO to sell new
offerings of equity or debt securities to potential buyers. The group that underwrites the IPO
shares the burden and assists in the effective delivery of the new securities issue. If an issue is
too big for a single entity to deal with, an underwriter syndicate is generally created so that the
resources of all companies can be used to manage the issue and distribute the risk.

The syndicate is repaid by the spread of the underwriting, which is the difference between the
cost payable to the issuer and the price earned from shareholders and other broker-dealers when
the issue is publicly released. An underwriter syndicate is often alluded to as an underwriting
group, a banking syndicate, and an investment banking syndicate.

As compared to a business selling the shares directly to buyers, members of an underwriter

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