Please kindly assist with the following questions: Number of shares issues - what really determines the number of shares issued? Liquidity risk - how can one make sure there will be enough liquidity in the market when deciding the number of shares to issue for an IPO

Number of shares depends on the amount of money you want to raise, % of shares you want to issue and offer price per share Roadshows ahead of an IPO are conducted to test institutional investors demand for shares. IPO shares are allocated in advance to institutional investors

Valuation (business fundamentals) and Demand (Marketability) How much capital the company wants to raise / amount of ownership willing to give up if the price is too high, not enough investors will subscribe to the issue and the underwriting company will be left with shares it either cannot sell or must sell at a reduced price, incurring a loss. Sometimes, when underwriters can't find enough investors to purchase IPO shares, they are forced to purchase the shares that could not be sold to the public aka "eating a stock"

IPO number of shares

Please kindly assist with the following questions:

Number of shares issues - what really determines the number of shares issued?
Liquidity risk - how can one make sure there will be enough liquidity in the market when deciding the number of shares to issue for an IPO

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masters

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8y

Best Response

Number of shares depends on the amount of money you want to raise, % of shares you want to issue and offer price per share
Roadshows ahead of an IPO are conducted to test institutional investors demand for shares. IPO shares are allocated in advance to institutional investors

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Authored by: Certified Private Equity Professional - PrincipalCertified Private Equity Pro

Tedypendah

?

8y

Say I plan on raising $50M, and I want to issue 50% and the offer price is $1 per share, how so I calculate the number of shares?
After the IPO, how will i know that in the future shares will change hands easily?

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masters

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Nr of shares will be $50mn divided by 1$ per share so 50mm shares. The % you are offering will depend on the pre-ipo equity value. If this is 100mn then post ipo equity value will be 150mm so the 50mm issued will represent 33%
You cannot be sure, usually a large number of shareholders and a large amount of shares available increase the liquidity but you cannot have a gurantee

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Authored by: Certified Private Equity Professional - PrincipalCertified Private Equity Pro

3 replies

Jamie_Diamond

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8y

Valuation (business fundamentals) and Demand (Marketability)
How much capital the company wants to raise / amount of ownership willing to give up
if the price is too high, not enough investors will subscribe to the issue and the underwriting company will be left with shares it either cannot sell or must sell at a reduced price, incurring a loss. Sometimes, when underwriters can't find enough investors to purchase IPO shares, they are forced to purchase the shares that could not be sold to the public aka "eating a stock"

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JFinanceQs

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IPO number of shares

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