Investors feel the toe end of Deliveroo’s greenshoe shuffle
A growing body of academic research suggests overallotments options do little to calm volatility or stem IPO underpricing. It’s about time that greater scrutiny was given to what has for underwriters been a risk-free bet.
It befits a provider of stock market plumbing that we only tend to notice float stabilisation managers when things go wrong. Yet the inquest into Deliveroo’s flop IPO has drawn overdue attention to their role.
To summarise, finding a flotation price is a messy affair. Little is fixed until the very end of the book building process, meaning underwriters tasked with selling the stock want flexibility and the promise of a safety net. An overallotment option known as the greenshoe, providing for the sale of an extra block of shares, ought to provide both.
