Question

Describe the three forms underwriters contract to sell an initial public offering. Under which method does the underwriter face the most risk from? Why? Complete the table below and match the company with the best form of underwriting. Justify your choice.

Company Name	Principal Activity	Issue Price	Capital to be raised	Form of Underwriting
Coda Minerals Ltd	Mineral exploration & Development	30c	$6,500,000
Adore Beauty Group Limited	Online Cosmetic Retailer	$6.75	$269,000,000
MyDeal.com.au	E-commerce	$1.00	$40,000,000

Answer 1

Here is my Answer for the above question

As per my knowledge about underwriting...there are three main types of underwriting, 1. firm underwriting 2. best efforts underwriting 3.All or none underwriting

1. Firm underwriting: in this type of underwriting, the underwriter agrees to buy entire issue at a agreed price,if the underwriter fails to sell the entire pubilc issue ,he will financially liable for the unsold issue....this is an high risk underwriting for the underwriters.

2. Best efforts underwriting: this is one most used form of underwriting among these three types of underwriting,in this underwriters has no financial liability on unsold issue,underwriters are tries to sell all the issue if they are not sold all the issue then also there is no financila liability on underwriters, they will get commission on sold issue.

3. All or none underwriting: In this type of underwriting,unless the underwriters are sold the all isuue the contract is void ab initio...that means when the underwriters are fully sold the issue then only they are eligible for commission.

Company name	Principal activity	Issue price	Capital to be raised	form of underwriting
Coda Minerals ltd	Mineral exploration& development	30c	$6500000	here shares will be 21666666, here firm underwriting is the best option because the business also quite interesting and financial liability also less compared to others..
Adore beaty group ltd	Online cosmotic retailer	$6.75	$269000000	here shares will be 39851851, here best efforts underwriting is best because no of shares also high and issue price also high,if he choose all or none he has to sell all the shares not possible,or he choose firm the financial liability is more,so in this case best efforts underwriting is the best option.
My deal.com.au	E-commerce	$1.00	$ 40000000	here shares will be 40000000, here best efforts underwriting is best option because no of shares are more...if i have to choose all the three types in this question...the All or none is the option available for this case....here this business also quite interesting and issue price also less,so all or none is also suitable in this case.