Arriving at a cost is a magical mystery tour

In 2004, Google came to market with an initial public offering (IPO). The company took an unconventional approach to pricing: it put its offer to all investors through an open, Dutch auction.

All investors, whether individuals or institutions, were asked to submit orders. The deal was then priced at exactly the level required to sell all shares at the highest possible valuation. It was a groundbreaking approach to IPO pricing. It sounded efficient, transparent and utterly fair.

It was also a failure. The deal was slashed in size, and the firm probably got a lower price than if it had taken a more conventional approach to listing. But that's the mystery of IPO pricing. The process is steeped in opacity and shot through with mixed motivations and competing agendas

This is what the public sees: allegedly hot, heavily subscribed deals mysteriously tanking on trading. Alternatively, an offer may soar upon start of trading, but individual investors might find themselves with few shares and wonder exactly why some got blessed with big allocations and others not.

The truth is that there are several important players in any given deal. There is the issuer (and, in some cases, selling shareholders), bankers and key institutional investors. Each party exerts influence in a tense, competitive process with unpredictable outcomes.

It's also opaque. The deal may be public, but the path to pricing an IPO is anything but.