Selling syndicate definition
/What is a Selling Syndicate?
A selling syndicate is a group of underwriters working together to sell a securities issuance to the investing public. The group does so by buying the securities from the issuer and reselling them. Sales are typically made to smaller brokerage firms, which then sell the securities to individual investors. A selling syndicate is not a permanent arrangement; underwriters come together for the sale of a specific security and then split up once the sale transaction has been completed.
Example of a Selling Syndicate
One of the most notable examples of a selling syndicate involved Alibaba’s Initial Public Offering (IPO) in 2014. Alibaba, the Chinese e-commerce giant, launched its IPO on the New York Stock Exchange (NYSE) in September 2014, raising $25 billion, the largest IPO in history at the time. To manage and distribute such a large offering, Alibaba formed a selling syndicate led by major investment banks, including the following:
Lead Underwriters:
Goldman Sachs
Morgan Stanley
JPMorgan Chase
Citigroup
Credit Suisse
Deutsche Bank
Co-Managers & Other Participants:
Barclays
BNP Paribas
Mizuho Securities
CICC (China International Capital Corp.)
The lead underwriters (Goldman Sachs, Morgan Stanley, etc.) managed the offering and allocated shares to the selling syndicate. Members of the selling syndicate then sold shares to institutional and retail investors. The banks in the syndicate shared the financial risk by agreeing to purchase and distribute Alibaba’s shares at a predetermined price. After the IPO, the syndicate helped manage price fluctuations by buying back shares if needed to prevent volatility.
As a result, Alibaba raised $25 billion, making it the biggest IPO ever at the time. The stock soared 38% on its first trading day, showing strong demand from investors. The syndicate successfully distributed shares globally, ensuring a smooth offering.
Advantages of a Selling Syndicate
There are several advantages to setting up a selling syndicate. They are as follows:
Less risk. The risk associated with the sale of a security can be spread across a large group of underwriters. This is a particular concern when the underwriters have guaranteed to purchase the security at a fixed price from the issuer, since there is a risk that they will not be able to resell them to investors.
Larger investor pool. The syndicate has access to a larger group of investors than any single underwriter would have if operating alone. This makes it easier to sell a large security issuance.
Greater expertise. There are more experts scattered among the various underwriters in the group, making it easier to handle the more specialized securities issuances.
Terms Similar to Selling Syndicate
A selling syndicate is also known as a selling group.