June 10, 2019
An IPO is supposed to look orderly. The company hires underwriters, files publicly, markets the story, prices the deal and rings the bell. Everyone knows where the banks sit because their names are printed on the front of the filing.
But the clean public ritual hides a messier private contest. For many late-stage technology companies, the IPO process is not only a path to the public markets. It is also a way to expose the company to strategic buyers, test valuation and create urgency. That turns the final stretch before listing into something more powerful than a financing process. It becomes an escape hatch.
That escape hatch is why large IPO underwriters have grown uneasy with boutique M&A advisers, especially Qatalyst Partners. The boutique does not need to run the IPO to influence the outcome. It can work in the background, identify likely acquirers, make introductions and push the argument that a sale is better than going public.
The fee problem
The conflict is simple. IPO banks can spend months preparing a company for a listing, only to watch the company sell itself days before the offering. If another adviser leads the sale, the IPO banks may lose the mandate and the economics attached to it.
That is why Morgan Stanley and other underwriters began asking some clients for assurances that they would still be included and paid if an IPO turned into an acquisition. Sometimes those assurances were informal handshake agreements. Sometimes they were written into underwriting agreements.
The concern was not theoretical. AppDynamics was preparing for an IPO led by Morgan Stanley that would have valued the company around $2 billion. Instead, Cisco agreed to buy it for $3.7 billion in cash and assumed equity awards. Qatalyst arranged the deal, and Morgan Stanley was caught by surprise.
Qualtrics followed a similar pattern. The survey-software company was planning an IPO at a valuation of about $5 billion. Days before the listing, SAP agreed to buy it for $8 billion. Qatalyst arranged the sale. Morgan Stanley was ultimately involved in the transaction, but it was not the lead adviser.
There are cases where the IPO bank still benefits. When Workday bought Adaptive Insights shortly before its planned IPO, Morgan Stanley transitioned from underwriter to sale adviser and received fees tied to that new role. Adaptive’s CEO said the IPO syndicate had done substantial work and deserved proper economics.
Why boutiques have leverage
Qatalyst’s pitch is powerful because it attacks a structural weakness in the traditional IPO mandate. If a large bank is hired to run the offering, does it really want an M&A process distracting from the IPO? And if M&A fees are often larger than IPO fees, can the company trust the same bank to be perfectly neutral?
The bulge-bracket answer is the opposite. Their view is that the company gets the best outcome when the same bank controls both tracks. A banker advising on a sale without an inside view of the IPO valuation is missing critical information. They also argue that boutiques are not as independent as they sound because they are typically paid only if an acquisition happens.
Both sides are arguing from self-interest. That does not make either side wrong. It simply reveals the truth of the dual-track process: every adviser has an incentive, and every incentive shapes the advice.
For technology companies, this matters because strategic buyers can change the entire equation. Large tech companies have enormous cash balances and can pay for assets that help them fill product gaps, defend market position or accelerate growth. A company that looks like an IPO candidate to public investors may look like a must-have asset to a strategic buyer.
The quiet auction
The most interesting part of this dynamic is how little of it happens in public. In a normal IPO, the underwriting group is visible. In the late-stage M&A alternative, a boutique adviser can operate quietly. Qatalyst has been described as doing its own analysis of likely acquirers, arranging conversations and making the case to both sides even when the company has not formally hired it in advance.
That is why the boutique role feels disruptive. It does not need to own the formal process at the beginning. It only needs to create a credible enough sale alternative near the end.
That credibility can alter the economics for everyone. M&A fees can exceed IPO advisory fees because an acquisition sells the whole company, while an IPO usually sells only a portion of the business. Banks also value IPOs because they can lead to future work: secondary offerings, debt deals and acquisitions once the company is public.
So when a company sells instead of lists, the lost fee is not only the immediate IPO fee. It can also mean losing the future banking relationship.
The interview lesson
For investment banking candidates, the lesson is not simply to memorize which bank advised which deal. The better takeaway is to understand the incentives underneath the mandate.
If asked about IPOs, M&A or dual-track processes, do not treat them as isolated products. A dual-track process creates tension because IPO valuation, strategic buyer interest, fee structures and adviser incentives all interact. The company wants maximum optionality. The IPO banks want to protect their economics and relationship. The boutique M&A adviser wants a sale. The buyer wants an asset before public markets set a new benchmark.
That is the real technical point: process affects value. Who controls information, who has the mandate and who gets paid can shape whether a company goes public or disappears into a strategic acquirer days before the bell.
The public market may be the stage, but the decisive deal can happen offstage.