Merkado Barkada
October 29, 2025 | 8:30am
NOTE: The Masked Banker is a top executive at a local investment house. Their identity was confirmed to my satisfaction through independent reference and credential checks, but has been withheld at their request.
MB: I’m so excited to talk to a high-level investment banker (IB) about IPOs! Thanks for putting aside some time to talk shop about the IPO process with a certified IPO fanboy like me.
Masked Banker: The pleasure is mine, and thank you also for the opportunity to provide your audience with insights on what happens behind the scenes on IPOs and the process. Hopefully your audience will have a better understanding of what goes on, and spot the actions that go behind certain moves during an IPO.
Merkado Barkada (MB): For most investors, the preliminary prospectus filing with the SEC is the first time they see an IPO, but that’s actually a huge milestone in a long process that probably started months (if not years) ago. How do IPO candidates and bankers first come into contact?
Masked Banker: Prospective IPO candidates are introduced to the Investment Bankers in one of several ways:
- Creditor banks of the IPO candidates are one of the “first touch” with the IPO candidates, who happen to be lenders to such companies. The creditor banks usually introduce such IPO candidates to their IB (investment bank) subsidiaries.
- Audit and/or law firms that have such IPO candidates as their clients and refer them to their IB contacts. The quid pro quo is that the said audit or law firms are also engaged in the transactions.
- PSE-LEAP – the PSE has a Listings Engagement and Assistance Program (LEAP) that regularly conducts roadshows and discussions with companies that express interest in listing on the PSE. During such engagements, the PSE will normally include an IB to provide context on the IPO process and underwritings.
- Financial Advisers – IPO candidates may have their own respective financial advisers who are working with the company to prepare for its capital-raising activities, such as an IPO. These advisers then turn to their contacts among IBs to present and pitch their services.
- IBs – we will also reach out to companies that we believe are IPO-ready and have a unique storyline to bring to market. We will usually try to find introductions to the company principals or even cold-call.
MB: Assuming either side can initiate, which (in your experience) is better for the potential performance of a future IPO?
Masked Banker: Generally, the IPO candidates that proceed to the offering are those that have an expressed interest/objective/goal for their planned IPO, and these are the companies that are “motivated” and actually proceed with their IPOs. A motivated company would have an initial plan already and outlook on where they want to go. IBs provide the runway for these companies to achieve their goal of going public.
MB: What are the critical things that bankers and potential IPOs talk about in those first few meetings?
Masked Banker: Personally, it’s critical to understand the IPO candidate’s objective and purpose for going public. Candidates should be motivated, as it’s a long process that requires principals’ and senior management’s engagement. We also talk about the fundraising requirement (how much cash we need to generate from the transaction), and we check on the commitment level of the principals and senior management players who will be involved in the transaction. We also assess the familiarity of those players with the workings of the stock market to try and avoid any rude awakenings or misconceptions.
MB: How can retail investors get a feel for how involved and bought-in the IPO candidate’s principals and senior managers are to the deal?
Masked Banker: A good indicator of this is when the Principals are the ones front and center in Pre-Deal Investor Education (PDIE – this is an Investment Banker terminology) presentations, QIB briefings, and retail roadshow presentations. When these are “assigned” to the investor relations team, the involvement is not really the same.
MB: What are the red flags that you look for that might signal a problem for an IPO candidate?
Masked Banker: There are several:
- Governance and Reputational Considerations – Before we even speak with prospective IPO candidates, we will conduct research on the Company’s principals, the Company, its past performance, reputation in the industry and trade, manpower/labor matters. These areas provide a peek into the red flags, if any.
- Unrealistic Price Expectations – We’re normally wary of IPO candidates that have unrealistic price expectations and who may not have thought through their bases for such price expectations.
- Lack of Plans – If the IPO candidate does not know what it will do with the funds raised, I believe there is no reason for them to go public at this time.
- Big Secondary Portion for the IPO – Unless the IPO involves a REIT or the secondary portion will be for the overall allotment/stabilization fund, we will usually advise against an IPO candidate doing a large secondary portion (greater than 20%) as it gives a wrong message to the market that the principals are cashing out.
- Presence of PE Investors – While PE investors signal an initial group as having conducted a thorough due diligence review and their investment in the company presents a “seal of good housekeeping” from a professional investor – our worry is the timing and extent of secondary selling that the PE Investor would undertake during the public offer and eventually during listing (what will they do after the lock-up period).
MB: How do investment bankers try to overcome those red flags?
Masked Banker: We usually will have a frank and candid discussion on the red flag matters and signal remedial actions on the part of the IPO candidate. If we believe that they will be sincere in addressing the red flags, then we proceed. Otherwise, we beg off on the deal.
MB: The topic of price must be an intensely emotional one for some owners. How do you work with potential IPOs to come up with a price range?
Masked Banker: The “science” in pricing is that the IBs will go through a valuation process with the IPO candidate using one of a number of valuation methodologies: (a) asset-based, (b) market-based, and (c) cash-flow based. We also look at the IPO candidates’ intrinsic “valuables” like the industry it is involved in, its industry standing/market share (is it a leader or a challenger), reputation, and potentials/prospectus. Finally, we look at overall market sentiment: bull or bear. Personally, a frank question I always ask the principals of my IPO candidates is this: At what price will YOU buy your company’s stock?
MB: Is the pricing day “discount” used by some IBs as a way of framing the IPO price as a “deal” relative to its maximum price from the prospectus?
Masked Banker: The discount is usually the actual price established during the book-building process, i.e, the price that clears the books (usually 70% of the offering).
MB: How is that maximum price from the prospectus arrived at?
Masked Banker: This is usually the HIGHEST JUSTIFIABLE PRICE IN A PERFECT MARKET, based on the higher end of comparables at the best times in the market, just in case the market and valuations move and approach this condition.
MB: How does the investment bank “test” the pricing during the book-building process?
Masked Banker: There is usually a small group of Institutional Investors (Fund Managers, Stock Broker Research Heads, and Institutional Investor Sales Heads) that we will hold in-depth presentations and discussions to get their candid comments, interest, and at what price levels in the IPO pre-deal roadshows. This initial canvas allows us to narrow the price range before going into the actual QIB briefings and book-building, where, if we did our job right, we should be getting stronger interest.
MB: The last few IPOs have performed very well relative to their IPO prices, but historically (since COVID), IPOs on the PSE have generally lost a significant amount of value relative to their IPO prices. What do you think is the cause of this historical underperformance?
Masked Banker: The historical under-performance was really due to companies coming out or getting caught in the middle of market disturbances that affected overall market sentiment. A few companies that went public also posted weaker-than-expected revenue and earnings growth, with some even posting earnings declines.
MB: What do you think is behind the overperformance of recent IPOs?
Masked Banker: The companies listened to market investors’ feedback and came to market with deep cuts in IPO pricing/valuation, and this was well received by investors. There was also better-than-expected earnings performance, and even post-IPO mergers & acquisitions activity.
MB: Ok, I’m going to have to stop myself there, because I could literally do this for hours. Thank you for answering my questions so directly and giving MB readers a look behind the IB curtain to gain a better understanding of the IPO process!
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