Press Release: February 8, 1999
WR HAMBRECHT + Co. PIONEERS NEW APPROACH TO INVESTMENT BANKING WITH LAUNCH OF OPENIPO
New Auction-based IPO Method Makes Going Public
More Beneficial for Issuing Companies, Gives All Investors
Early Access to IPOs
San Francisco, CA, February 8, 1999—WR Hambrecht + Co., an investment banking firm founded by industry leader Bill Hambrecht, today announced the launch of its landmark OpenIPO service, an electronic, auction-based method of conducting initial public offerings.
“Our goal is to identify the next generation of leadership companies,” said Bill Hambrecht, CEO of WR Hambrecht + Co. “We developed OpenIPO to take advantage of new technologies for the distribution of equity securities to their most natural buyers.”
In response to the traditional IPO system, WR Hambrecht + Co. sought to employ a method that would create an equal footing for all participants. This system, based on a design by Nobel-prize-winning economist William Vickrey, uses a mathematical model that lets the market set the optimal share price for both the company and the investors. A similar model is used by the U.S. Treasury to auction 10-year notes and 30-year bonds.
Under the OpenIPO process, every bid - individual or institutional - is on equal footing. The OpenIPO auction permits potential buyers - through bidding - to create a market-clearing price, which is the price at which the company can sell all the shares it is offering. The bidders that offer a price above the lowest accepted bid then receive the option to buy the number of shares they bid for at a price equal to that market clearing price. Because every successful bidder pays the same price as the lowest accepted bid, many investors may ultimately pay less than they bid for the stock.
“OpenIPO was created to balance the interests of companies and investors,” said Hambrecht. “Instead of prices being set and shares allocated by the underwriters, OpenIPO share prices and allocation are determined by an impartial, internet-based auction system.”
Companies using the OpenIPO system will realize four key benefits over the current IPO system:
- Better allocation - the issued stock will be purchased by investors who want to hold the shares, not ’flippers’ who sell for a quick profit.
- Lower costs - by leveraging technology, WR Hambrecht + Co. will attempt to reduce expenses for the issuing company, including underwriting commissions, printing, legal and out-of-pocket costs.
- Less Dilution - the economics of the issuing company drive the deal size, not the cost structure of the underwriting investment bank.
- Better Pricing - OpenIPO eliminates the IPO ’discount’ demanded by traditional players.
Each company that goes public through OpenIPO will receive continuing coverage by WRHCo’s online research product - along with hundreds of other publicly traded companies the product tracks. WRHCo’s comprehensive, objective, and timely approach to research centers on its proprietary segmentation of each industry the firm covers. Companies are categorized based upon product offerings, competitive groupings, and the market trends exploited. Complete financials, competitive analysis, valuation comparables, and market studies outsourced to independent third-party research firms give a unified and unbiased view of the investment risks and opportunities facing a particular company.
“By bringing together buyers and sellers in a blind auction, OpenIPO allows the market to determine the full and fair market value of an offering,” said Ian Zwicker, president of WR Hambrecht + Co. “The result of the OpenIPO process is an initial price that reflects what people are willing to pay for a stock not the discounted best estimate of an analyst.”
Investors and companies can obtain more information about OpenIPO, including requirements and details on how to participate, on the OpenIPO website, www.openipo.com, or through the company’s website at www.wrhambrecht.com
The OpenIPO system is only one of the ways WR Hambrecht + Co. plans to change the face of investment banking by leveraging technology. Established in January 1998 by Bill Hambrecht, the co-founder of Hambrecht & Quist, WR Hambrecht + Co is the next step in the evolution of financial services. The company offers a full range of financial services that builds on the company’s stated ’early investing’ philosophy focusing on emerging companies. In addition to OpenIPO, WR Hambrecht + Co, which became a licensed broker-dealer in July 1998, is active in investment banking, private equity, research, electronic underwriting, and trading. Initially, the company is focusing on three growth industries significantly affected by new technological developments: software, the Internet, and consumer branded products.
