The IPO Process Is Rigged — and That’s Exactly Why You Need Independent IR Counsel

I once helped a company through a $70 million IPO. Solid business, clean story, reasonable valuation expectations. During the bookbuilding process, the lead underwriter arranged three separate meetings with a single investor (an individual, not a fund) across three different cities on the roadshow. Each time, the banker made introductions with visible enthusiasm. This investor was described, in various permutations, as “highly connected,” “influential in the space,” and “someone you really want on your register.”

At the close of the book, this indispensable investor submitted an order for $500,000, priced almost entirely below the indicative range. The portion that fell within range was roughly $100,000.

Three meetings. Three cities. Three rounds of travel, preparation, and senior management time. For an order that would not have covered the catering.

That is not a story about one bad actor. It is a story about what the IPO process actually looks like from the inside, and about the structural reality that in an IPO transaction, the listing company is typically the only participant who doesn’t fully understand the rules of the game.

Why issuers are the least-informed party in an IPO

An IPO is often described as a “partnership” between the issuer and its banking syndicate. This is roughly as accurate as describing poker as a “partnership” between the players. Everyone is seated at the same table, and everyone is notionally playing the same game. But the banks know the cards. The institutional investors know the odds. The issuer, the one whose company is actually on the table, is frequently the only party operating without a complete understanding of the incentives, mechanics, and unwritten conventions that determine the outcome.

This isn’t because issuers are unsophisticated. Many are exceptionally capable operators who have built businesses worth hundreds of millions of dollars. But building a business and pricing its equity are different disciplines, conducted under rules the CEO has never encountered and with information gaps that run almost entirely in one direction. A CEO who can negotiate a complex supply chain contract may never have seen a bookbuilding report or questioned why a particular company was chosen as a valuation peer. The banks know this. They are, after all, repeat players. Your company will IPO once. Your lead underwriter will do a dozen deals this year.

That gap in pattern recognition is where value gets lost.

Your company will IPO once. Your lead underwriter will do a dozen deals this year. That gap in pattern recognition is where value gets lost.

The IPO syndicate problem: too many banks, not enough conviction

Consider a different deal. A company with a market capitalization of roughly $400 million was preparing for a listing that would raise around $50 million. Not a blockbuster, but a perfectly respectable transaction in its market. The syndicate, however, was structured as if the company were ten times the size: two global investment banks and two domestic houses, four institutions sharing a fee pool that was, by the standards of any of them individually, modest.

During the international roadshow, the meeting schedule was conspicuously thin. Several days had two or three meetings where six or seven would have been reasonable. Time that should have been spent in front of allocating investors was instead spent in hotel lobbies and transit lounges.

When I raised this with one of the accompanying bankers, politely but directly, the response was disarming in its honesty. The fees, he explained, were “basically too small for our salespeople to be enthusiastic about it.”

Let that settle for a moment. An investment bank had accepted a mandate, put its name on the tombstone, committed its institutional brand to the deal. And it was now explaining, midway through the roadshow, that its own sales team couldn’t be bothered to fill the calendar because their cut of the commission wouldn’t move the needle.

The company, of course, had not been told this when the banks were competing for the mandate. During the beauty parade — that peculiar ritual where banks present their credentials and promise the earth — every house had explained in detail why they were uniquely positioned to deliver. The pitch decks were beautiful and the league tables flattering. The “key differentiators” were, as always, differentiated.

What the company could not have known is that in a four-bank syndicate on a $50 million deal, the economic incentive for any single bank is vanishingly small. The banks accepted the mandate for relationship reasons: to stay close to the controlling family, to position for future debt mandates, or simply to prevent a competitor from getting the slot. Delivering an outstanding IPO for this particular company, on this particular deal, was not the primary objective. It was a secondary consideration at best, somewhere below “maintain the relationship” and “don’t visibly embarrass ourselves.”

This is not corruption. It is not even, in the narrow sense, bad faith. It is simply what happens when the incentive structure of the service provider is misaligned with the needs of the client. The banks were behaving rationally given their own economics. The problem is that nobody explained those economics to the company before the mandate was signed.

How IPO valuation peer selection gets manipulated

The most consequential misalignment, though, goes deeper than effort. It sits in the valuation itself: specifically, in the selection of comparable companies that form the foundation of the pricing analysis.

I worked with a company worth roughly $2 billion, operating in a sector with genuine ESG credentials and, critically, no domestic listed peers. Not unusual in Southeast Asian markets, where sector coverage can be patchy and many industries simply lack a local comparator set. In such cases, the underwriting banks construct a peer group from international markets, typically other emerging economies with companies in adjacent sectors.

The banks presented five comparable companies. Because I have access to the same financial databases the banks use, I did what any independent adviser would do: I checked.

One “peer” was a $50 million company with three shareholders and virtually no trading liquidity. As a valuation reference point for a $2 billion enterprise, this was roughly as useful as comparing a corner shop to a department store because both sell things. Another had approximately 20 percent of its revenue in my client’s sector, with the remaining 80 percent derived from traditional heavy industry, a business mix so different that the multiple was essentially meaningless. A third had similar structural problems.

In total, three of the five peers were not appropriate by any reasonable standard of comparability. Yet the indicative price range, the range that would be presented to investors and would anchor every subsequent pricing conversation, was built on all five.

Call that what it is: a foundational error. Peer selection is the single most important input in an IPO valuation, and it is also the one most susceptible to quiet manipulation. Banks have an incentive to arrive at a price that will “clear,” a price low enough to ensure the book is comfortably covered, ideally multiple times. A well-covered book makes the bank look good; a barely covered book means difficult allocation decisions and awkward phone calls. An under-covered book is a career event for the wrong reasons.

There is nothing sinister about wanting the deal to succeed. But “success” for the bank and “success” for the issuer are not the same thing. For the bank, success is a filled book, a modest first-day pop, happy institutional clients who will take the next call, and a tombstone for the pitch deck. For the issuer, success is maximizing proceeds while building a shareholder register that will support the stock for years. These objectives overlap, but they do not align. The gap between them is where significant value transfer occurs.

If the peer set is too conservative, the indicative range comes in low, and the final price follows it down. When that happens, the first-day pop is larger, institutional clients are delighted, and the bank’s equity sales desk gets to call their investors with good news. Meanwhile, the issuer has just sold a piece of their company for less than it was worth, and the “underpricing” shows up as a wealth transfer from the company’s existing shareholders to the investors who were allocated stock.

Across Southeast Asian markets, academic studies consistently show average first-day returns of 20 to 50 percent. In Indonesia, the figure has at times exceeded 50 percent. That is not a sign of a well-functioning market. It is a sign that issuers are systematically leaving money on the table — and the people setting the table are the ones collecting it.

The information asymmetry is the product

None of this requires anyone to be dishonest. That is the part that makes it difficult to address and easy to perpetuate. The bankers are exercising judgment when they present a peer group, and reasonable people can disagree about comparability. The sales team is simply prioritizing the deals that pay better. The investor who takes three meetings and submits a token order is playing the game as it exists.

The real issue is that the issuer is the only party at the table without a full picture of how the game works. The banks understand their own incentives, the investors understand the allocation mechanics, and the lawyers understand the documentation. But the company, the entity that is actually being priced and actually bearing the consequences, is often relying on its underwriters for guidance on a process those underwriters have a structural interest in managing to their own advantage.

None of this is unique to Southeast Asia; the same dynamics exist in London, New York, and Hong Kong. But in emerging markets, where deal sizes are smaller and the institutional investor base is more concentrated, the effects are amplified. A company listing on the IDX or the PSE has fewer natural checks on the process than one listing on the NYSE. The information asymmetry is wider, and the cost of that asymmetry is proportionally higher.

What independent counsel actually changes

The case for independent IR counsel on an IPO starts from a simple premise: your banks may be excellent, but they are excellent at serving their own institutional logic, which is not identical to yours.

An independent adviser who has sat on both sides of the table, who has seen the bookbuilding reports, challenged the peer selections, questioned the meeting schedules, and tracked what happens to pricing when nobody pushes back, changes the dynamic in specific, measurable ways.

They interrogate the peer group before the indicative range is set, using the same databases the banks use, and flag comparables that don’t survive scrutiny. They monitor roadshow intensity and demand accountability when the schedule thins out. The book, as it builds, reveals whether the composition of demand supports the proposed pricing or whether the bank is steering toward a level that optimizes for coverage rather than proceeds; an independent adviser can read those signals. And they prepare the management team not just for investor questions, but for the parts of the process that the banks have no incentive to explain.

Most importantly, they reduce the information asymmetry that is the source of the problem. An issuer who understands the mechanics, who knows what a good book looks like and can distinguish a genuine anchor from a placeholder order, is simply harder to underprice.

The cost of IPO underpricing: what issuers leave on the table

The IPO process is not rigged in the conspiratorial sense. Nobody is meeting in back rooms to defraud issuers. It is rigged in the structural sense — the way a poker game is rigged when one player doesn’t know the rules. The outcome is not predetermined, but the probabilities are not evenly distributed either.

For a company raising $100 million, the difference between leaving 15 percent on the table and leaving 5 percent on the table is $10 million. That is real money. A new factory. A geographic expansion. Two years of R&D. Value that accrues to someone; the only question is whom.

The banks will continue to operate according to their incentives, because that is what incentives are for. The investors will continue to play their position, because that is what investors do. The only variable that changes is whether the issuer sits at the table with someone who can read the cards — or whether they play the hand blind and hope for the best.

If you are contemplating a listing and have not yet engaged independent IR counsel, the single most useful thing I can tell you is this: by the time the bookbuilding starts, most of the value has already been determined. The peer group is set and the range is anchored. The roadshow schedule is already printed. The moment to influence those decisions is before the mandate is signed, not after the first investor meeting.

The game starts earlier than you think. And the people running it are very, very good at it.