What’s the deal with… the Alibaba IPO?

Unless you’ve been hiding in a cave over the past few months, it has been impossible to avoid the hype surrounding the initial public offering (IPO) of Chinese e-commerce giant Alibaba on the New York Stock Exchange.

But, what’s all the fuss about? Well, the first thing to know is that it’s a big one. The largest ever, in fact.

Alibaba’s flotation in New York raised a whopping $25bn, soaring past the previous record-holding IPO – that of Agricultural Bank of China which raised $22.1bn on the Hong Kong Stock Exchange back in 2010.

It’s particularly interesting given Alibaba’s humble beginnings. The online shopping site began life in 1998, in founder Jack Ma’s one bedroom apartment in China’s Hangzhou region.

Today it records annual sales of $420bn – dwarfing Amazon and eBay which had a combined turnover of $90bn in 2013.

The site dominates internet retailing in China, where it powers 80 per cent of online commerce. It sells pretty much anything you can imagine – a one-stop-shop for items ranging from a new pair of shoes to a worm-shaped rollercoaster or a couple of pregnant cows.

Ma, who already has celebrity status in China, has become the country’s richest person as a result of the IPO. He’s known as an eccentric sort, treating employees to a rendition of ’Can You Feel The Love Tonight’, dressed head to toe in leather and a Mohawk wig, to celebrate Alibaba’s tenth birthday in 2009.

But Ma doesn’t mess about when it comes to business. His initial plan was to float Alibaba on the Hong Kong Stock Exchange, and he held talks in the region for almost a year.

However, the flotation ran aground when it emerged that Hong Kong wouldn’t allow Ma to let a small group of Alibaba insiders nominate the majority of its board – instead demanding that shareholders have a say over management equal to their stake in the company.

Alibaba NYSE IPO
A banner on the New York Stock Exchange marks the Initial Public Offering of ecommerce company Alibaba on 19 September 2014.

In order to retain his tight grip, Ma upped sticks and moved the listing to the New York Stock Exchange, which has a more relaxed stance regarding who sits on the company’s board.

The switch marked a massive loss for Hong Kong’s economy, which hasn’t hosted an IPO of more than $4bn since late 2010.

It also had massive implications for the legal advisers involved in the transaction. Alibaba had initially turned to its go-to adviser Freshfields Bruckhaus Deringer. But the change in jurisdiction meant that the magic circle firm was ousted in favour of US firm Simpson Thacher & Bartlett, while Fangda Partners advised Alibaba on Chinese aspects of the matter.

Sullivan & Cromwell advised the underwriting banks, while King & Wood Mallesons provided them with advice on Chinese law. Offshore firm Maples & Calder was also instructed, advising Alibaba on Cayman Islands law.

Between them, the firms involved pocketed a bumper pay-cheque of $15.8m (£13m) – more than six times the $2.6m that firms were paid for Facebook’s controversial IPO back in 2012.

It sounds like a mammoth amount, but it’s loose change compared to the $261m Alibaba shelled out to the banks advising on the deal.