What Does Lead Underwriter Mean?
A lead underwriter is usually an investment bank that helps an organization to sell its shares to the public for the first time. In the case of large offerings, a group of underwriters come together to form a syndicate and the entity leading this syndicate is the lead underwriter. In the case of smaller offerings, only one investment bank is involved and this person is the lead underwriter of this offering.
Divestopedia Explains Lead Underwriter
A lead underwriter is involved in a process that begins when a particular company decides to go public to raise capital for its expansion. It has to decide the type of offering it wants to make, with choices being stocks, bonds or any other publicly traded security. Since this process of taking securities to the public is a long and complicated process, the company hires an underwriter to help.
Once chosen, the underwriter and the company decide on the type of security that should be offered to the public. Once this structure is determined, the underwriter may form a syndicate with other underwriters to better manage the process. Also, this syndicate shares the risks that come out of this offering so that no single underwriter is affected. Such a syndicate is formed only for large offerings where the risk is high and the process is complicated. This syndicate's leader is the lead underwriter, and this entity is responsible for assembling and managing the syndicate throughout the offering. A formal agreement is entered into between the lead underwriter and the company as well as between the lead underwriter and other members of the syndicate.
After forming the syndicate, it is the responsibility of the lead underwriter to determine the final offering price. This price depends on two factors: the size of the proceeds and the ease with which the underwriter can sell the securities to the public. Negotiations take place between the lead underwriter and the company issuing the securities to determine the right price for the offering. Once the price is decided, the syndicate gets together to determine how many shares it will sell during the offering and then decides the closing date accordingly.