Friendly Hands
"Friendly hands" is a term used to describe investors in an initial public offering (IPO) who will likely hold onto the security for a long time. Companies that go public do not want their stock to be played with, and the underwriters and distribution group prefer not to engage in price stabilization upon launching the IPO into the market. Therefore, as much as possible, allotments of a limited number of available shares will be directed into friendly hands. The opposite of friendly hands is a flipper, who is more interested in profiting from a hot IPO issue by selling it almost immediately after purchasing it from the underwriter or a member of the distributing syndicate. Friendly hands are institutional investors who will hold the shares they buy in an IPO for the long term. As much as possible in an IPO, a limited amount of shares will be directed into friendly hands in order to stabilize the stock price.
What Are Friendly Hands?
"Friendly hands" is a term used to describe investors in an initial public offering (IPO) who will likely hold onto the security for a long time.
Friendly hands are not interested in purchasing the new issue with the hopes of flipping the shares for a quick profit. Long-term investment in IPOs tends to reduce stock volatility, thus promoting stability that could then draw in other investors.
Understanding Friendly Hands
In the book-building phase for an IPO, the underwriter will traverse the country (or world in some cases) with members of company management on what is known as roadshows.
The intent is to market new shares to institutional investors who will place large blocks of shares in long-term portfolios. Companies that go public do not want their stock to be played with, and the underwriters and distribution group prefer not to engage in price stabilization upon launching the IPO into the market.
Therefore, as much as possible, allotments of a limited number of available shares will be directed into friendly hands. The opposite of friendly hands is a flipper, who is more interested in profiting from a hot IPO issue by selling it almost immediately after purchasing it from the underwriter or a member of the distributing syndicate.
Friends With Benefits
Institutional investors who demonstrate consistent friendly behavior with IPO participation place themselves in favorable positions for future highly-coveted IPOs. By showing they are committed to owning shares for the long term, they will likely receive better allocations than flippers for a hot issue.
In fact, flippers may get zeroed out entirely on an underwriter's book. As a company matures in the public markets, friendly hands may even be consulted by the company about corporate governance matters or key strategic issues.
Related terms:
Accounting
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more
Allotment
An allotment commonly refers to the allocation of shares granted to a participating underwriting firm during an initial public offering (IPO). read more
Book Building
Book building is the process by which an underwriter attempts to determine the price at which an initial public offering (IPO) will be offered. read more
Corporate Governance : How It Works
Corporate governance is the set of rules, practices, and processes used to manage a company. Learn how corporate governance impacts your investments. read more
Dog and Pony Show
A dog and pony show is a colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers. read more
Flipper
A flipper is an investor who buys a stock, often an IPO, in order to to sell it for a quick profit or who buys and renovates homes for quick profits. read more
Hot IPO
A hot IPO is an initial public offering of strong interest to prospective shareholders such that they stand a reasonable chance of being oversubscribed. read more
Institutional Investor
An institutional investor is a nonbank person or organization trading securities in quantities large enough to qualify for preferential treatment. read more
Initial Public Offering (IPO)
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. read more