According to the Wall Street Journal, Twitter is not holding back with its leverage on its investment bankers, which include Goldman Sachs (GS), Morgan Stanley (MS), J.P. Morgan Chase (JPM), Bank of America Merrill Lynch (BAC) and Deutsche Bank (DB).
For the most part, it is not easy to negotiate IPO fees. There are only a handful of investment banks available for deals, and they generally remain united when it comes to holding the line.
However, when it comes to a marquee deal, things break down. The compensation is really just an afterthought, as investment bankers want to get the prestige from being part of a historic IPO. Plus, these firms should have little problem making up the loss from other deals, right?
As for Twitter, it looks like it will only have to pay a 3.25% fee. Assuming the company raises $1 billion, the total compensation for investment banker will be a meager $32.5 million. The typical percentage paid is about 4.6% (based on the research from Ipreo). This is just another sign that the deal is going to be red-hot.
Yet Twitter’s fee is still much heavier than Facebook’s (FB), which was a mere 1.1%. But that deal was huge, ultimately coming to $16 billion.
Don’t shed too many tears for Wall Street, though. Twitter will likely continue to be a nice source of fees, such as follow-on offerings and acquisitions.
More importantly, by being part of a high-profile transaction, this should help investment bankers get other deals, especially in the hot sectors of social media and mobile. As seen with the year so far, IPOs have been strong and will continue to be key to growth.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.