See: Greenshoe. See: Underwriter.
Overallotment is the new and improved, more PC term for the option to sell more shares to the public in a given offering.
When bankers have done such an awesome job hyping...er, um, marketing a given security for sale to the public, they often receive the automatic right to sell a chunk more to the quivering, hungry masses. Like...if PJ SilverSlacks is selling 10 million shares of whatever.com to mutual and hedge funds and family offices all over the world, and they do a great job marketing, then their overallotment allowance might be something like 1.5 million extra shares, for a total sale to the public of 11.5 million shares.
Remember that they get commission on each share. Call it a nickel? A dime? Sometimes they take a spread in buying at $19.70 and reselling at $20. Depends on the flavor of the underwriter's agreement. But that's the gist.
So once the infrastructure is all paid for (meaningful fixed cost), then the contribution margin of additional shares sold is very high. That is, the sale of those additional shares didn't really cost the underwriter much, so they are happy to sell. And in most cases, companies, at the right price, are all too happy to dilute themselves a tad more but raise a boatload more cash. Everyone's happy in a bull market.
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Finance: What is an IPO?25 Views
And finance allah shmoop What is an i p o
Well this is a hippo and it has nothing to
do with an ipo Auras Normal humans pronounce it if
both well actually most people just spell it out I
po It stands for initial public offering In the three
words tell the story and i pl refers to a
company who's raising money by selling shares of itself to
the public for the first time a maiden voyage in
public funding if you will Whatever dot com has forty
million shares outstanding after three private rounds with venture capitalists
and private investors it wants to raise money to go
big internationally And for the first time it will offer
shares to joe and jill public And that means that
all of it shares will be tradable publicly on the
open market like on nasdaq or the new york stock
exchange That is the insiders early investors founders et cetera
will be able to just call their broker at schwab
or fidelity or wherever and sell their shares get liquid
and buy themselves a maserati because it's not what everyone
does after a nice meal So whatever dot com sells
ten million shares a twelve bucks each to raise one
hundred twenty million dollars which they can spend to build
out offices all over the world So yeah that's an
ai po and that's Why a company generally wants to
make shares available to the public because once you've made
an initial public offering and you make money off the
sales of your stock you khun by as many hippos
as you like and just remember to feed them three
times a day they get Cranky if they go too 00:01:35.158 --> [endTime] long in between No
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