Competitive Bid


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.

BREAKING DOWN '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.

  1. Syndicate

    A professional financial services group formed temporarily for ...
  2. Public Offering Price - POP

    The price at which new issues of stock are offered to the public ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  4. Re-Offer Price

    A price at which the underwriting syndicate of a debt issue resells ...
  5. Underwriting

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

    A process in which both the purchase price and the offering price ...
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