In a groundbreaking move anticipated to reshape the financial landscape, SpaceX is preparing for what is set to be the largest initial public offering (IPO) in history, with a remarkably low “gross spread” of just 0.75% or less for its underwriters. This figure ties the record for the lowest percentage on record for a conventional IPO, as noted by Jay Ritter, a leading academic expert in the field. Typically, underwriters take a more substantial cut ranging from 1% to 3% in similar high-stakes offerings. For context, when Facebook and Uber went public, underwriter fees ranged between 1.1% and 1.3%.
Despite the unprecedented low gross spread, the sheer volume of shares on offer ensures that Wall Street will reap substantial financial rewards. SpaceX plans to issue 555.6 million shares at a price of $135, aiming for an astonishing $75 billion valuation. The total offering may reach approximately $86 billion when including an additional 15% allocation called an “over-allotment,” solidifying its status as the largest IPO ever conducted on a U.S. exchange, dwarfing the previous record set by Alibaba in 2014.
The underwriters for this monumental offering range from major investment banks like Goldman Sachs and Morgan Stanley to smaller boutique firms such as Allen & Co. and William Blair. With the total fees expected to exceed $646 million, this would more than double the fees associated with Alibaba’s IPO and significantly surpass the costs linked to offerings by Uber and Meta.
The prospect of high potential returns extends beyond the stated underwriting fees. Ritter emphasizes that most of the financial windfall will not come from the gross spread but from “soft dollars.” This aspect of the financing mechanism allows underwriters like Goldman Sachs to channel a significant portion of shares toward their preferred institutional investors. While the distribution is broader than usual, with an estimated 30% allocated to retail clients compared to the typical 5%, Goldman Sachs, as the lead underwriter, will ultimately have the most influence over share allocations.
As anticipation builds around Day 1 of trading, analysts are keenly focused on the potential stock jump. Historically, around 75% of IPOs end their first day above the offering price, with an average increase of 19%. SpaceX has also set aside 5% of shares to be sold at the offer price to employees and their associates, indicating an intention to create a favorable opening for those connected to the company.
In a scenario where the shares rise 20% on the first day, Wall Street could see profits that amount to staggering figures—potentially over $17.3 billion in gains, which could lead to around $5 billion being funneled back to the underwriters in soft dollar revenues. Goldman Sachs, positioned as the lead left underwriter, stands to benefit disproportionately from this arrangement, highlighting the symbiotic relationship between IPOs and investment banks.
Overall, while the IPO process for disruptive companies like SpaceX may be evolving, the underpinnings that have long characterized Wall Street remain steadfast. As this monumental offering approaches, the financial community is bracing for historic payouts, reaffirming the status quo in the world of high-stakes investments.
