How Google profited by Dutch Auction?

Google utilized a variant of a "Dutch Auction" when it issued its IPO ("initial public offering" of its stock) a year or so ago. Many of the Wall Street financial houses that usually manage such offerings were not thrilled about this approach even though Google obviously was a hot stock.





How Google profited by using a Dutch Auction rather than the usual way of doing IPO's? .which involves the auction houses setting a price per share for the stock and then selling it

How Google profited by Dutch Auction?
When a company decides to go public they hire an underwriter. The underwriter tears apart the books and the business model of the company and figures out a valuation for the business. Between the company and the underwriter, they then figure out how much money to raise. That will determine how many shares are offered and at what price. These days (most of the time) when a company does an IPO, the main underwriting company guarantees that the IPO will be succesful. They do this by agreeing to purchase all of the shares of the IPO. They then turn around and offer the shares to the public. Because of the risk to the underwriter, financially as well as reputation, the underwriter usually prices the IPO a little low to ensure success of floating the shares. They also want to show immediate gains for their institutional and bigger clients that purchase the shares. This will build their reputation and will help them with future deals.





When a company decides to do a Dutch Auction, the underwriter loses control of the deal and doesn't like the increased risk. The benefit to the company is that they receive the true market value for their shares. In the Google situation that was great because the company got a lot more money, but it can also go the other way.

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