Competitive Bid

AAA

DEFINITION of 'Competitive Bid'

A step in the initial public offering process whereby an underwriter submits a sealed bid to a company that is making its first issue of stock. After collecting competitive bids from several underwriters, the issuer awards the contract to the underwriter with the best price and contract terms. Competitive bidding is considerably less common than negotiated bidding, the other main method by which issuing companies contract with underwriters. Competitive bidding is more common with municipal bonds issued by utility companies.

INVESTOPEDIA EXPLAINS 'Competitive Bid'

Underwriting is a crucial step in the IPO process. Underwriters are usually investment banks, and they are responsible for selling the stock of the company that is going public. A firm is more likely to use a negotiated bidding process in selecting an underwriter because it wants to work with a familiar firm (such as the one that managed its venture capital financing) or a firm that has an excellent reputation. In fact, it's common to use several underwriters, called a syndicate, which share the risk of selling the IPO shares.

RELATED TERMS
  1. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  2. Underwriting

    1. The process by which investment bankers raise investment capital ...
  3. Negotiated Underwriting

    A process in which both the purchase price and the offering price ...
  4. Public Offering Price - POP

    The price at which new issues of stock are offered to the public ...
  5. Syndicate

    A professional financial services group formed temporarily for ...
  6. Re-Offer Price

    A price at which the underwriting syndicate of a debt issue resells ...
Related Articles
  1. Is Insurance Underwriting Right For ...
    Insurance

    Is Insurance Underwriting Right For ...

  2. The Alphabet Soup Of Financial Certifications
    Options & Futures

    The Alphabet Soup Of Financial Certifications

  3. Greenshoe Options: An IPO's Best Friend
    Options & Futures

    Greenshoe Options: An IPO's Best Friend

  4. IPO Basics Tutorial
    Retirement

    IPO Basics Tutorial

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center