The fee pie for the largest IPO in history has been sliced, but the truly massive money may not have even started flowing yet.
On Friday, SpaceX set an IPO record with a $75 billion offering size, while also completing the deal with one of the lowest underwriting fees in history. The total underwriting fee is approximately $500 million, which translates to a rate of about 0.67%.
Even at this slim rate, it still represents the single largest underwriting fee event in Wall Street history. As joint lead underwriters, Goldman Sachs and Morgan Stanley each received a fee share of roughly $1 billion.
SpaceX not only negotiated a low fee rate but also secured an unusual clause: if the underwriters exercise the Green Shoe option to sell an additional 15% of shares (amounting to about $11.25 billion), SpaceX will not pay any fees. This means banks like Goldman Sachs and Morgan Stanley would forgo approximately $75 million in potential revenue.
The Green Shoe Option, also known as an over-allotment option, is a special right granted by the issuer to the lead underwriter during an IPO.
Its core function is to stabilize the stock price in the first 30 days after listing, preventing sharp fluctuations, and is often called the "market stabilization tool" for new listings. The mechanism is named after the Green Shoe Manufacturing Company, which pioneered its use in its 1963 IPO.
However, the visible underwriting fee might be the smallest piece of the pie in this transaction. According to analysis by University of Florida professor and IPO academic expert Jay Ritter, the real wealth will flow to Wall Street in the form of "soft dollars," and Goldman Sachs, as the lead underwriter, is poised to be the biggest winner.
Record-Low Fee Rate, Unprecedented Absolute Amount
Investment banks typically charge 4% to 7% in underwriting fees for IPOs. Even for multi-billion dollar mega-IPOs, the rate generally stays between 1% and 3%.
For the Facebook and Uber IPOs, underwriting fees were in the 1.1% to 1.3% range. SpaceX's fee of about 0.67% ties the record for the lowest in history, set by General Motors in its 2010 IPO.
According to Ritter, General Motors secured that rate back then because Goldman Sachs aggressively lowered its price to beat competitor W.R. Hambrecht & Co.
Now, Goldman Sachs is again leading a deal at the same rate, with the underlying logic being identical – the offering size is so massive that a thin fee rate still translates to substantial absolute income.
In absolute terms, if the full deal size including the Green Shoe option (approximately $63.9 billion) is considered, the underwriting banks collectively stand to share about $646 million in fees. This more than doubles the roughly $300 million underwriting fee from Alibaba's 2014 IPO and far exceeds historical figures like Uber's less than $100 million and Meta's approximately $200 million.
The Real Gold Mine: Soft Dollars
Beyond the explicit underwriting fee, a much larger stream of revenue comes from "soft dollars" – the implicit returns institutional investors channel back to the underwriting banks through subsequent trading commissions after receiving IPO share allocations.
University of Florida professor Ritter explains that Wall Street typically prices IPOs slightly below their fair market value. About three-quarters of IPOs close above their offer price on the first day, with an average gain of around 19%.
Of that first-day paper profit, roughly 30% typically flows back to the underwriting banks as soft dollars, with the lion's share going to the lead underwriter. Using the example of a 20% first-day gain for SpaceX shares, institutional investors receiving allocations would see paper profits of about $17.3 billion on day one, shattering the previous record of approximately $8 billion set by Alibaba's 2014 listing.
If 30% of those profits flow back as soft dollars, Wall Street would reap over $5 billion in additional revenue, about eight times the size of the explicit underwriting fee. Ritter stated that the biggest beneficiary would undoubtedly be Goldman Sachs, as it ultimately decides who gets those shares.
Furthermore, SpaceX disclosed in its amended prospectus that it will reserve 5% of the offering shares for purchase by company employees, friends and family of executives, and business partners at the $135 offer price. This group is not subject to post-IPO lock-up restrictions and can sell their shares immediately after trading begins.
Ritter believes this arrangement suggests Elon Musk hopes for a significant first-day stock price increase.
Fee Distribution: Lead Underwriters Take the Lion's Share, Smaller Banks Get Around $2 Million
The underwriting syndicate for this SpaceX IPO was extensive.
The syndicate spanned top-tier investment banks, boutique firms, and large foreign banks, including Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, JPMorgan Chase, as well as Allen & Co., William Blair, Societe Generale, Santander Bank, Mizuho Bank, and over 20 other institutions.
Fees were allocated proportionally based on each bank's underwriting commitment:
As lead underwriters, Goldman Sachs and Morgan Stanley each received about $1 billion.
Bank of America, Citigroup, and JPMorgan Chase played smaller roles, receiving approximately $750 million each.
For the more than ten institutions listed merely as co-managers, the fee dropped sharply to about $2 million each.
Ritter pointed out that the joint bookrunners, because they lead the institutional allocation process, receive a larger-than-average share of the underwriting commitment, thus claiming a bigger portion of the fee pool. Among the participating firms, many of the smaller banks primarily serve retail clients.
First-Day Pricing and Opening: Breaking Convention Until the Last Minute
Even in the final stages, SpaceX maintained its unconventional approach.
During the roadshow, the company did not set an initial price range, instead locking in a final price directly after intensive discussions with bankers and investors.
It was reported that by Wednesday afternoon, SpaceX had received subscription orders worth hundreds of billions of dollars. Around 2 PM on Thursday, SpaceX executives held a final pricing meeting with bankers. That evening, bankers from Goldman Sachs and Morgan Stanley toasted with SpaceX executives.
Morgan Stanley was responsible for coordinating the opening day's morning trading. The stock opened at $150 just before noon on Friday, ultimately closing its first day with a gain of nearly 20%.
Elon Musk also requested that bankers and traders from the two lead underwriters wear green sneakers on the Nasdaq trading floor as a tribute to the "Green Shoe" option – he later posted a photo on social media showing Morgan Stanley CEO Ted Pick and other executives wearing fluorescent green sneakers.
Comments