How does a company decide what share price to set for its IPO?
Trending Content - Off Topic Forum
| +19 | How do we get as sharp as possible? | 9 | 17h |
| +17 | Q&A | Analyst | 8 | 2d |
| +14 | Best way to kill time? | 9 | 10h |
| +12 | Upselling yourself when you’re unqualified | 1 | 1d |
| +5 | Deciding what Keyboard is the best | 12 | 1d |
| 0 | Analyst Y1 - Messed up In First Week | 0 | 3d |
Career Resources
If I were to give an educated guess I’d suppose it has to be with a Dividend Discount model and a Comps model for pricing
By throwing darts at a board filled with random prices.
IPO listing share price = accepted valuation of company / number of shares you want to issue
Change around the variables as you want to arrive at the desired value.
I am not in IB, but I would say comps, fundamentals of the company (financials, etc) and market conditions.
The MD and business owners agree on a sale price. The grunts in the bullpen reverse engineer a DCF intrinsic valuation and find comps to support said sale price.
Serious question, I've seen so many IPOs fall massively on the listing day, does this mean the banker fucked up or is it the business owners mistake, also what are the reprecussions?
It means it was sold for the tip top valuation. Those who were not drinking the IPO Kool Aid wouldn’t dare pay the ipo price.
Think of it this way. When a company goes public, they get capital from shareholders for the first time. How would a ceo react if they set a price and the stock doubled in trading the same day. They’d likely sue the IB for underpricing the ipo to make the crony customers buying the stock rich. The ceo is a lot happier when it sells and trades sideways or goes down in value. It means they got the best possible price.
I recall the FB IPO very well. Stock dipped by half shortly after it was listed. Words like lawsuit, valuation fraud, and class action were the yahoo finance clickbait. But as you can see, the intrinsic value was there and even if someone bought in at the IPO price, they likely made out just fine.
Harum at porro ut. Ad dolore cupiditate ratione autem facere. Beatae omnis in illo consequatur ex.
Qui et reiciendis quis voluptate. Beatae et temporibus nemo et dolores quis. Eligendi tempore quia et qui ea cupiditate.
Et necessitatibus voluptates voluptatum autem. Enim laboriosam totam qui rem dolores. Sed modi assumenda rem corrupti consectetur.
Repudiandae odio consequuntur neque corrupti asperiores quaerat. Ipsum aliquam exercitationem facilis qui porro rem magnam. Quam exercitationem earum iusto. Debitis distinctio et aut eos aut. Nobis aut aut et pariatur laudantium voluptatem. Pariatur sit laboriosam doloribus dolor nobis est excepturi consequatur. Voluptas eum quam est at et qui eum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...