I've worked both on the buy and sell side of the new issue trade. On the buy side, as a proprietary trader, who had the option to buy the new issue (or not). On the sell side, pricing and structuring deals with the equity capital markets team, and placing them into the market. (This means selling them to institutional clients.)
It's not surprising to me that this stock exhibited really high volatility on day one. It's not easy to value this particular block of equity. It could easily have traded down 50% if the pricing was overly aggressive.
Here's why:
- Not profitable.
- No easy comparables to help you know what metrics the market is going to care about, or what multiple it will apply.
- Sub-majority block of equity being sold means public shareholders won't have control as a group.
- Large overhang in the form of the significant amount of shares that aren't being sold in the IPO, but will eventually need to get sold.
Typically an IPO would be shopped around the street, meaning that multiple banks would have the opportunity to handle the sale.
If it's a fully underwritten deal, one parameter that gets negotiated is the underwriting price: bank X will guarantee that you sell the stock for no less than $15; bank Y will guarantee that you sell it for no less than $18. (Note: they take a % off the top. Plus commission when they sell it to institutions.)
In a market this starved for IPOs, I'd guess this was an underwritten deal, which means that the other banks probably wanted to place it at an even lower price.