Definition
Co-Managers are financial institutions that assist the lead managers in marketing and distributing a new issue of securities, such as Eurobonds. While they do not carry the primary responsibility of structuring and pricing the deal, co-managers play an essential role in achieving the successful placement of the securities by leveraging their market reach and customer base.
Examples
Example 1: Eurobond Issuance
A multinational corporation issues a Eurobond worth $500 million. The lead managers, a consortium of well-established investment banks, aim to distribute these bonds. To ensure comprehensive market coverage and efficient distribution, they appoint several co-managers based on their capability to reach a wide array of potential investors. These co-managers use their retail and institutional customer bases to market and sell portions of the bond issue, aiding the lead managers in achieving full subscription.
Example 2: IPO Co-Managers
During an Initial Public Offering (IPO), a leading technology firm appoints a reputable investment bank as the lead manager to handle structuring, pricing, and regulatory compliance. To maximize the reach and marketing effort, the lead manager enlists co-managers, which may include regional banks known for their strong local client relationships. These co-managers handle parts of the marketing campaign and place significant portions of the shares with their respective clients, ensuring a broader distribution and higher likelihood of success.
Frequently Asked Questions (FAQs)
What is the main difference between a lead manager and a co-manager?
- Lead managers are primarily responsible for the execution, structuring, pricing, and overall coordination of the securities issuance. In contrast, co-managers assist in marketing and placing the securities, leveraging their networks without bearing the primary responsibilities.
How are co-managers selected?
- Co-managers are usually selected based on their market expertise, reach, and ability to place a substantial portion of the issue with their customers. They are often financial institutions with strong relationships in target markets.
Do co-managers receive compensation?
- Yes, co-managers receive underwriting fees as compensation for their role in the securities issuance, typically proportionate to the volume of securities they manage to place with their customers.
What types of securities do co-managers help market?
- Co-managers assist in marketing a variety of securities, including Eurobonds, corporate bonds, government bonds, and equity issues like Initial Public Offerings (IPOs).
Can co-managers influence the pricing of the issue?
- While co-managers contribute valuable market insights, the final pricing decisions typically lie with the lead managers.
Related Terms
Lead Managers
- Investment banks or financial institutions mainly in charge of structuring, pricing, and coordinating the issuance of new securities.
Eurobond
- A type of bond issued in a currency not native to the country where it is issued, typically underwritten by an international syndicate of banks.
Underwriting
- The process through which investment banks raise investment capital from investors on behalf of corporations and governments issuing securities.
Syndicate
- A group of financial institutions that come together to manage and distribute a new securities issue, sharing the risks and the placement effort.
Online References
Suggested Books for Further Studies
- “Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions” by Joshua Rosenbaum and Joshua Pearl
- “The Business of Investment Banking: A Comprehensive Overview” by K. Thomas Liaw
- “Fixed Income Securities: Tools for Today’s Markets” by Bruce Tuckman and Angel Serrat
Accounting Basics: “Co-Managers” Fundamentals Quiz
Thank you for exploring the role of co-managers in the issuance of securities and engaging with our insightful quiz questions. Continue expanding your financial knowledge for a more robust understanding of the market structures!
