Twitter IPO banker fees could be twice that of LinkedIn

Banker fees could be split among several as Twitter seeks to add more banks to the synidcate

It has only been two weeks since Twitter announced that it had filed confidentially to go public, but things are already going mighty fast.

The IPO, which is likely to raise over $1 billion, could be done in the next two months, before Thanksgiving, according to a report from Reuters on Thursday.

In preparation, the company is now reportedly looking to add more banks to its underwriting syndicate, as well as finalizing the fee structure for those underwriters.

The rumor going around from the beginning has been that Goldman Sachs will be the underwriter of the public offering, but it is unknown at this time how many underwriters Twitter has or what percentage of the potential IPO proceeds the company has proposed to pay them.

But we sure can speculate, based on what the company is expected to be valued at, and the percentage that bankers typically take in these scenarios.

The average that underwriters usually get is roughly, but the larger an IPO, the more investors can swallow a lower rate. IPOs that raise less than $500 million typically generate underwriting fees of seven percent, and the fee percentage shrinks as an IPO grows in size.  

So how much could the banks potentially make off of Twitter?

As Reuters points out, Twitter's valuation is estimated to be somewhere near $15 billion. If it sells 10% of its shares, and pays the banks 4% or 5%, that would add up to a payday of $60 to $70 million for the banks to split.

Lets compare that amount compare to what the banks made on some other recent tech IPOs:

• LinkedIn - The company raised a total of $352.8 million in its IPO. LinkedIn paid its underwriters, including Morgan Stanley and Bank of America, $30 million to split between them, which would indicate a fee of around 9%.

• Zynga - The IPO raised $1 billion in 2011, and generated fees of roughly 3% for its six bankers. That added up to a total of $32.5 million, the largest for an American Internet company since Google’s debut in 2004.

• Groupon - The company had a $700 million IPO, and paid its underwriters a 6% fee. That came out to a total of $42 million for the 14 banks.

• Facebook - This is the outlier of the group. Facebook had a $16 billion IPO, but only paid its underwriters a fee of 1.1%, much lower than what bankers are typically paid. Facebook was able to take advantage of the prestige of being such a high profile deal, as well as the prospect of doing future business with those banks. And the underwriters still did fine for themselves; the 33 banks were able to split a total of $176 million.

So Twitter could wind up generating more money for banks than many of the recent big IPOs. Of course, how much each bank would eventually get would depend on how many it has to be split.

Twitter could not be reached for comment. 

(Image source: https://www.teachthought.com)