Question

As 4th year business majors I'd like you to research the Shake Shack IPO. (It happened in 2015) I have a question and a thought. Where did the IPO money go? (did it go to financing expansion or into the pockets of the people who started Shake Shack............(Did the original owners get rich on this IPO)? On the first day of trading the stock more then doubled. Well If I'm one of the people that brought the company public should I be furious with the investment bank that priced the offering low.......(we brought in half the money we could have on the offering)..........the stock more then doubled the first day, Did the investment bank interpret the demand totally wrong?

Answer 1

1) The IPO money would have gone to fund the business expansion process. There is no way that owners would have directly got the IPO money because the owners are not themselves selling any shares and the IPO would have only diluted their holding. They might have made money by selling their shares, if the shares got listed at a premium or on future price appreciation.

2) That is a correct presumption. The company would have lost out on the money that it could have garnered by pricing the IPO correctly. Instead it only could gather half the expected amount of money.

3) The investment bank clearly understood the demand wrong as it mispriced the ipo and the price of shares doubled post listing. If there was no mispricing, then the price of the share would have remained stable.