What is the role of the lead manager in an IPO?

The lead manager plays a crucial role in the process of launching an Initial Public Offering (IPO). They are responsible for managing and overseeing various aspects of the IPO process, ensuring that the company’s shares are effectively marketed and sold to the public. The lead manager is typically an investment bank or a consortium of investment banks that work together to execute the IPO. Below, we’ll break down the key responsibilities of a lead manager in an IPO:

1. Structuring the IPO

One of the first responsibilities of the lead manager is to help the company structure the IPO. This includes determining the type of offering, the pricing range, the number of shares to be issued, and deciding on the method of offering (such as book building or fixed price). The lead manager also helps in deciding the financial terms and the strategy for marketing the IPO to potential investors.

2. Due Diligence and Regulatory Compliance

The lead manager conducts thorough due diligence to ensure that all the information presented in the IPO prospectus is accurate and compliant with regulatory requirements. They work closely with legal advisors to ensure that the company meets the regulations set by the Securities and Exchange Board of India (SEBI) or other relevant regulatory bodies. This includes preparing the Draft Red Herring Prospectus (DRHP) and filing it with the regulatory authorities for approval.

3. Marketing the IPO

The lead manager is responsible for marketing the IPO to potential investors, which is a critical part of ensuring that the offering is successful. They conduct roadshows and presentations to generate interest and demand for the shares. The lead manager also coordinates with institutional investors, retail investors, and analysts to help them understand the company’s value and potential growth prospects.

4. Pricing the IPO

The lead manager plays a crucial role in determining the final offer price of the IPO shares. This process involves analyzing the company’s financials, the overall market conditions, and investor sentiment. The lead manager uses various pricing methods, including book-building and fixed-price methods, to set the price at a level that will attract investors while ensuring that the company raises the required capital.

5. Stabilizing the IPO

After the IPO is listed on the stock exchange, the lead manager’s role does not end. They are also responsible for stabilizing the share price in the initial days following the listing. This can involve "green shoe" options, where the lead manager buys additional shares to stabilize the market price if the stock falls below the offering price.

6. Post-IPO Responsibilities

Once the IPO has been completed and the shares are listed on the stock exchange, the lead manager may continue to have post-offering responsibilities. This can include ensuring that the company complies with ongoing regulatory requirements and providing guidance on the secondary market trading of the stock.