Elon Musk is about to test investors' limits with the initial public offering (IPO) of SpaceX. The IPO price has been set at $135 per share, with plans to sell 555.6 shares. That means the company is raising a massive $75 billion. There is material news flow around the deal, some of it positive and some negative. At this point, there's no way to know if the stock will rise or fall once it starts trading.
There are ways for investors to get exposure to the space sector outside of SpaceX before the company's IPO, if you want to play the potential halo effect across the industry. And Baron Partners Fund has a material investment in the currently private company, with the mutual fund's shareholders standing to benefit if the stock takes off. But there's a risk the shares don't do that, and the IPO halo turns into a crown of thorns for the space sector. The only sure-fire winners in this IPO are likely to be investment banks Goldman Sachs (GS +1.14%) and Morgan Stanley (MS +0.39%). Here's why.
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IPOs are complicated to pull off
Initial public offerings aren't things that just happen on their own. There is a long list of rules around going public, a complex process that must be worked through to get it done, and Wall Street has to be informed about the company. Getting IPOs over the finish line is a key function of investment banks, which collect handsome fees for overseeing the process.
In the case of SpaceX, the company has chosen Goldman Sachs as its lead investment bank, with Morgan Stanley tagged for a secondary spot. But it's a big deal, so Bank of America (BAC -0.93%), Citigroup (C -0.59%), and JPMorgan Chase (JPM -0.52%) are also involved. Goldman Sachs will make the most money from the deal, with Morgan Stanley and the rest coming in behind it. The banking fees will amount to 0.75% of the total raised, according to Bloomberg, or around $500 million. That's actually a relatively low fee percentage-wise for the investment banking services being rendered, but the size of the deal is clearly making up for it.
NYSE: GS
Key Data Points
There is a lot to know about the SpaceX deal before you buy it
While you should tread with caution with any IPO, this deal is particularly notable. Reading the company's S-1 registration statement will get you into the groove on key facts. For example, the company is losing money, and Elon Musk will own more than 80% of SpaceX after the IPO. Also, trading is expected to happen on June 12, which is fast approaching.
Unlike SpaceX, Goldman Sachs and Morgan Stanley are profitable businesses. They don't actually need the fees they'll earn from SpaceX, but getting the bragging rights that come with heading up the deal is likely to be important in the competitive investment banking industry. The rich banking fees they'll earn aren't bad, either, of course.
NYSE: MS
Key Data Points
The benefit for Goldman Sachs, Morgan Stanley, and the other investment banks won't end there, however. The underwriters will have the option to purchase just over 83 million shares, representing an $11 billion investment. Of course, owning SpaceX stock will only be a benefit if the shares rise, and there's no way to know if that will happen.
In fact, if the investment banks did their job correctly, the IPO price would be the "correct" price. And the market wouldn't push it higher or lower. That's not the way things normally happen, of course, because emotions play such a pivotal role in stock prices over the short term. And with so much hype around SpaceX, many investors are likely expecting it to rise.
Let the dust settle with SpaceX
It is probably better for long-term investors to avoid the feeding frenzy that often accompanies big IPOs like SpaceX. It is an important company in the still-emerging space industry, but the hype around this IPO could still leave investors surprised by the outcome. Given the long-term nature of the entire space sector and artificial intelligence (SpaceX owns xAI), taking a prudent approach and waiting to see what happens with the IPO rather than jumping in with both feet probably won't hurt you much.
Meanwhile, if you feel you need to be involved in the IPO in some way, consider buying Goldman Sachs or Morgan Stanley, the only sure-fire winners from this massive IPO.
