Sometimes, this kind of transaction is also referred to as coinvestment. This approach is characterized by the joint action of the participants who face tremendous information uncertainties, that is, the investment decision is reached unanimously and the venture capitalists or buyout firms are united by the common purpose to increase their portfolio company’s value.
In the context of investment banking, a syndicated sale describes a transaction in which a bank underwrites the issuance of a specified security and passes parts of these securities to the other syndicate participants in order to sell them at a previously negotiated single price.
Sometimes, there are also banks involved, which are not part of the syndicate; they form the selling group. The syndicated sale allows the involved investment banks to share their risks. All syndicate participants and members of the selling group are compensated for selling securities to the final investors, the so-called spread between the price paid by the investors, and the price paid to the issuer of the security.
The syndicate manager, potential further managers, syndicate participants, and the members of the selling group share this spread because of their readiness put up with risks and distribute the securities to the investors.
Generally, the syndicate manager and the other managers receive an additional compensation for executing their management function and coordinating the syndicate and, in the case of the book-running manager, for the technical efforts.
Three forms of contracts are used in an underwriting. In a "firm-commitment" contract, the underwriter guarantees the issuer the sale of the securities at a price negotiated beforehand, and the risk is borne by the underwriter.
The "best-efforts" contract is the agreement in which the underwriter commits himself to sell at the negotiated price as many of the securities as possible, whereas in the "all-or-none" contract the underwriter sells either the whole issuance or exercises his right to cancel the transaction.