Series 79 practice questionhardSyndicate Formation
A $750 million IPO has three joint bookrunners with economics split 40%/35%/25%. The gross spread is 5.5%. What is the approximate total compensation for the bookrunner with the 35% economics?
- A$10.3 million
- B$14.4 million✓ Correct answer
- C$26.3 million
- D$41.3 million
Explanation
Why B — $14.4 million
The total gross spread is $750 million x 5.5% = $41.25 million. The bookrunner with 35% economics would receive approximately $41.25 million x 35% = $14.44 million. This compensation covers the firm's share of the management fee, underwriting fee, and selling concession. In practice, the economics may not be split precisely according to these percentages across all three components, as the lead bookrunner often receives a disproportionate share of the management fee.
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