IPO discount
Does anyone know if there's such a thing as a "typical" ipo discount? I'd assuming it's something along the lines of 15% ? maybe 25%?
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used to be 15
15-30% is the range I've been given by a boutique and a BB person... I wonder if that holds for the IPOs this year though.
what is an IPO discount?
Normally in an IPO the shares are issued at a discount to what is considered their intrinsic value and that’s why investors keenly await IPOs and make money on most of them.
Typically between 10 - 20%. Right now its closer to 20% because investors are requiring a greater discount given underlying macroeconomic fundamentals.
20% is pretty average.
IPO Discounts (Originally Posted: 02/14/2012)
I'm trying to get my head around this but am unable to. I am calculation dilution in an IPO, and the model someone sent me shows this:
Pre-Money: $5000 IPO Fees: $250 Offering: $2500 Discount: 10% Post-Money: $7250 (or $5k + $2500 - $250)
They are calculating dilution as: Dilution = Offering / (Post-Money / (1 + Disc))
This is a stupidly simple reason, but I can't seem to match. If we assume that they have 1000 shares ($5/share), then they would issue at $4.55 ($5/(1.1)) which is 35% dilution. However, they are showing dilution at 38%. What is the rationale for their formula to calculate dilution? Am I doing it wrong??
Much appreciated!
1 - [5000 / (5000+2500*1.1+250)]
Not sure why you have to add 250 but this way it comes out to 38%. Maybe they made a mistake? Or can someone explain why you have to add and not subtract 250?
Post-Money @ Trading = $7,250
Post-Money @ Pricing = $7,250 / (1 + 10%) or $6,591
New Shareholders Ownership = $2,500 / $6,591 or 38%
if you want to think of it as shares, remember that issuers have to pay all fees, including IPO expenses and IPO discount.
So the $5 that you started with is no longer $5… it’s way less net of the the fees.
so calculate the fees first… IPO discount = $7250/1.1 - 7250 = -$659.1
then add IPO fees of $250, so total fees = $909.1
subtract the $909.1 from $5000… this is now your new pre-money equity value (fees are value destructive), so that’s $4,090.1
if you have 1,000 existing shares, then one share is worth $4.09 (from $5.00!)
New investors will want to come at the $4.09 price, so $2500 / $4.09 = 611.1 new shares are created.
total share count is now 1,611.1
new investors get 611.1 / 1,611.1 = 38% ownership or dilution
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