Gross spread

If shares are sold to investors at €18.00 and the company receives €17.10, the €0.90 difference is the gross spread. It is expressed as a percentage of the deal, and it is the whole economics of the transaction for the banks.

It typically runs from roughly 3% on a very large offering to 7% on a small one, since much of the work is fixed regardless of size. European IPOs generally price at the lower end of that range than comparable US deals.

It splits three ways: a management fee to the banks that ran the process, an underwriting fee compensating for the book risk, and a selling concession paid on stock actually placed, which is the largest component and rewards distribution.

Issuers increasingly split the fee further, with a discretionary incentive portion allocated after the event based on performance, which is a direct response to complaints that a fixed pool rewarded banks that contributed little.