A withdrawn offering is an initial public offering (IPO) that was scheduled for particular offering date and then subsequently withdrawn from the market such that it is not sold on that date (Ritter, 1998). Companies may go public in the United States under either a firm commitment or best efforts contract with an investment bank.
Under a firm commitment contract, a preliminary prospectus is issued with a price range for the offering for the road show to solicit investors’ interest in the offering. If the company and its investment bank determine that the market conditions are such that the company will not sell at a price that is acceptable to the company then the offer will be withdrawn until the market conditions improve.
Under a best efforts contract, the company going public and its investment bank agree to the minimum and maximum number of shares to be sold at a specified price and during a specified selling period, usually 90 days. The investment bank makes best efforts to sell the shares during the specified selling period.
If the minimum number of shares is not sold during the specified selling period then the offer is withdrawn and all the money of the investors is reimbursed from an escrow account, with the issuing firm receiving no money. IPOs raising an amount greater than $10 million almost always use firm commitment contracts, whereas best efforts contracts are used by more speculative smaller IPOs.