Let's say the implied post money equity value is 3000m and the IPO discount is 15%. What would be the correct way to calculate the implied including the discount?
1. 3000*(1-0,15) = 2550
2. 3000/(1+0,15) = 2609
So just not sure how the discount should be handled correctly. These give slightly different answers.
I am going through the IPO model here:
https://breakingintowallstreet.com/biws/kb/debt-equity/ipo-valuation-mo…
In order to calculate the price implied offering share price (cell G33) he deducts the capital raised. The video says this is because the capital raised is implicitly reflected in the equity value. I struggle to understand this. The implied post money equity value (G30) is P/E multiplied by the net income. Why do you need to deduct the capital raised from that amount? Is it because he assumes that the capital raised either:
1. Influences the P/E multiple so that without the capital the multiple would be lower?
2. The projected net income is affected by the capital raised and therefore you need to deduct the capital raised so you don't count it twice?
Either way, if they had raised 3bn the implied offering price would have been negative...
In this video he deducts that amount, because he needs to get his numerator (offering amount) and denominator (existing shares) to tie. If he didn't deduct it, he would be dividing the value of the company, with cash raised from the IPO (note: We know that excess cash does not impact value, from our EV to Equity walk we know that excess cash belongs to equity and not enterprise value), without accounting for the dilution (shares increasing).
Another way of thinking about it, if we didn't raise the IPO proceeds our equity value would be less (because we would have less cash on the balance sheet / more net debt etc.)
Hope that helps. Happy to answer any questions.
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