Underwriters . . .

refer to stock brokerage firms and others who market and sell company securities to the public.

Most public securities offerings are sold (or underwritten) by underwriters who specialize in such transactions. The sale is typically conducted through a syndicate of firms that are selected by the company’s underwriter. The managing (or lead) underwriter in the syndicate attempts to select the right combination of underwriters to achieve a distribution of the company’s shares among private individuals and institutional purchasers that will assure a good price in the offering and adequate trading in the shares after it is completed. The managing underwriter usually supports the company in the financial community after the offering by making a market in the company’s stock, providing research and analysis on the company for investors, organizing communications with investors and potential investors, and generally helping the company create a following in the investment community.

Because of the variety of services they provide and because their ability to provide those services efficiently can affect not only the offering price of the company’s shares but also their continuing strength in the public marketplace, the selection of the right underwriter is important. Among the characteristics management should consider when selecting an underwriter are:

• Stature within the financial community. The underwriter’s professional reputation as an investment banker can determine, in large part, his ability to put together a strong syndicate to sell the company’s shares. The strength of the syndicate can, in turn, influence the quality of the investors attracted to the offering.
  

• Experience in the company’s industry. Underwriters develop reputations within industries. An underwriter who is experienced at taking businesses public in the company’s industry can enhance the credibility of the company’s offering. Experience can also help an underwriter price a company’s shares properly so that the company’s shares hold their price or increase in price after the offering is sold.
  

• Research reputation. The company’s managing underwriter will be a primary source of information about the company to the financial community. It is helpful, therefore, to select an underwriter whose analysts are experienced and follow the company’s industry closely. An underwriter’s reputation for reliable research in a company’s industry can help sustain investor interest in the company’s stock.
  

• Ability to support the market. Once issued, the company’s stock will be traded on the over-the-counter market. The ability of the underwriter as a "market-maker" to support the market is important. By purchasing and selling the company’s stock in the market, the "market-maker" gives the company’s stock needed liquidity, which helps stabilize trading prices.

It is a good practice to interview several underwriters before selecting one to conduct a public offering. Accountants, bankers, lawyers, and other entrepreneurs can make introductions to underwriters. A good deal of information about underwriters and the types of deals they do also can be obtained by watching the financial press, particularly the Wall Street Journal. Underwriters regularly run advertisements (called "tombstones" by the trade) that show public offerings they have done and the syndicate members who participated. See: Going Public, IPOs (Initial Public Offerings), Investment Bankers, Syndications.