Banks Seek Prestige Over Fees In Facebook IPO

The other edge of the IPO sword can cut just as sharply for hot tech stocks.

Oliver P. Quillia for cnbc.com Morgan Stanley

LinkedIn,

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[LNKD  Loading...      ()   ] which raised $353 million last May in an IPO priced at $45 a share, watched the stock soar as high as $122.70 on the first day of trading.

LinkedIn shares have drifted down to the low $70 range, but the price range to date indicates that the company could have raised another $440 million to $1 billion in extra money if the IPO were priced more aggressively. Morgan Stanley was in the lead left position.

A sharp fluctuation in price soon after Facebook's IPO "would really embarrass Facebook and the underwriters," given the recent history of social-media IPOs, said Papaioannou

The Zynga, Groupon and LinkedIn deals garnered fees of 3 percent to 5 percent.

To be sure, the banks that are vying for a lead position on Facebook's IPO will have to do more than lowball on price. They will also have to convince the Palo Alto, California-based company that the deal will go off without a hitch.

As Facebook's size and influence have grown in recent years, its actions — whether changes to privacy policies on its popular networking site, or its interactions with Wall Street bankers — have come under intense public scrutiny.

Goldman's handling of a private sale of $1.5 billion worth of Facebook shares to wealthy clients last year stirred enough controversy that the bank was forced to limit the offering to non-U.S. investors.

That misstep may have cost Goldman some goodwill with Facebook, industry observers said. As a company that makes money from a broad base of users, it also forces Facebook to consider whether its IPO will give unfair advantages to well-heeled investors.

"Two reasons I think Morgan Stanley will get the lead: One, they have a great retail distribution platform with the Smith Barney franchise and, two, I don't think Facebook is overly happy with Goldman Sachs," said Jeff Sica, president and CEO of Sica Wealth Management, who has bought shares of Facebook in private, pre-IPO markets for clients.

Morgan Stanley was the top bookrunner for global high-tech IPOs last year, with $2.2 billion in global proceeds and 10.9 percent market share. It also led the pack in U.S. high-tech IPOs, according to Thomson Reuters data. Goldman Sachs was the runner-up with $1.9 billion in global fees and 9.2 percent market share, and ranked No. 3 in U.S. high-tech IPOs behind JPMorgan

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A less measurable but equally important factor in obtaining the lead IPO position is whether bankers can connect with decision makers at Facebook on a personal level.

"It's really going to be the banker that understands and is sensitive to Zuckerberg and the executive team's needs," said Dun & Bradstreet's Simmons. "Whoever does that successfully will get the bragging rights, the proverbial brass ring of tech IPOs."