For IPO valuation do you use public comps but no DCF or precedent transactions? Why?
Equity/debt pitch books – what is the process, the steps needed to complete the financing?
Indices – which ones are best to follow - the ones in your country only?
New to this area so any pointers would be extremely helpful.
Thanks!
| +157 | The "Not So Obvious" things that get you a return offer? | 18 | 3h | |
| +84 | Is my life over after not getting GS? | 19 | 49m | |
| +60 | Best IB group on the Street | 24 | 10m | |
| +52 | BIG FOUR ARE PARADISE | 13 | 9h | |
| +46 | Thoughts and tips on how to speak like an investment banker. | 23 | 6h | |
| +40 | Tell me one good reason why Jefferies isn’t going to be a top bank in the next 5 years | 20 | 18h | |
| +36 | UBS Outlook | 28 | 21h | |
| +35 | Georgetown Placement for 2024 and 2025 | 21 | 6d | |
| +31 | Highest Paid Bankers in Toronto? | 50 | 1d | |
| +30 | How to deal with egotistical team? | 6 | 2d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Why wouldn't you use a DCF or precedents? You are telling a company how much it is worth - if it is worth more in a trade sale, they should know that (unless you think the IPO would pay more, in which case, they shouldn't know that). In an IPO, trading metrics are more relevant because that is what the company is going to be valued on.
Equity/debt books vary massively based on what is being pitched, or if there even is any pitching - HY debt differs from IPO differs from IG debt differs from FO.
Relevant indices will be local and sector.
Couldn't you use precedent to see how much other IPOs were valued at for similar companies? O are only M&A records kept?
DCF - couldn't you figure out the value of the firm then se whether the current stock price is over-valued or under-valued?
Metrics - do you have a resource which explains the metrics and why they are useful please?
Equity book - suppose an IPO is being pitched. or a secondary capital raise. Can you give me an example or point me to a resource that can help please.
Got in on the indices. Thanks!
Current trading is going to be more relevant than IPO comps - yes, you could show, but, firstly, IPO comps are going to be rarer than M&A, because IPOs are rarer. Secondly, current public multiples are more relevant than past multiples (which is essentially what a prior IPO shows). You could make an IPO discount point here, but that is something the ECM guys will go by experience on rather than actually quantifying.
DCF is generally included, but unless a company is trading at insane multiples, it is always going to be the highest valuation.
At the end of the day, you already know what value you think the company can go for, so are going to try to triangulate to that point, and are going to use whatever metrics are necessary (and make them up, if need be).
Components of an equity book would still vary, but let's say it's an IPO pitch - you'd probably have marketing pages, sector/market update, investment case for the company, valuation, key investors in the sector/country, proposed timeline, etc.
Few more ques if you don't mind.
Understood on the IPO. But how about other equity offerings. e.g. suppose a company is issuing stock again (so its a secondary time they are issuing stock). Do you still use public com pans and include the same companies comp from before? Also did you mean market value (e.g. enterprise value) is more useful then comps?
Is it true IPOs are always undervalued? How would one undervalue it? Just use the lower end of the football valuation pitch?
So its similar to M&A - the seniors know the value and you have to try and mould your analysis to that figure? :D
You would very much use all 3 methodologies to triangulate. Final valuation is heavily depended on anchor marketing/pilot fishing, which is often guided by comps in a market like this.
DCF = enterprise value = equity value - cash + debt + minority interest etc.
equity value / ipo shares = price/share
Whiskey5 - why is DCF = enterprise value for IPOs? (i understood the rest of the post). Genesis - someone posted a similar question on M&I and it says you only use public comps... can you explain please?
DCF is enterprise value for everything. You can back solve from that to implied equity value.
drexelalum11 - can you explain why? I never knew that DCF = Enterprise Value...
http://macabacus.com/valuation/dcf/overview
wow - thanks for this!!! just realised what i asked was a stupid question. :S btw is the IPO stuff on this website relevant or is there another website for ECM stuff? thanks
IPO Valuation - Clarification? (Originally Posted: 09/06/2009)
When valuing a company for an IPO scenario (for instance when calculating the terminal value in a DCF for an IPO situation), should you apply comparable transaction multiple or a comparable company multiple to the company's financial metric (meaning the company planning the IPO)? It seems to me that if more than 50% of shares are sold in an IPO and control is given up, M&A comps would be more appropriate as they include a control premium. However, the only instances I've seen M&A comps being used are potential M&A situations, not IPO situations. Would really appreciate clarifications.
M&A past transaction comps are used in determining value in IPO situations, however, they are used as a secondary/tertiary source of information.
What are some typical valuation models for private companies going IPO? (Originally Posted: 10/27/2016)
Do they use usual valuation models like discounted cash flow, comparable companies analysis, and precedent transaction analysis??? (This is what I said in an interview, and I am worried if what I said is wrong?)
This is true, but the only difference for private company is there is no "observable" (equity) beta, because company isn't public. So you have to approximate one with comps (unlever comps, average for asset (industry) beta, relever for company equity / levered beta).
Precedent transaction doesn't necessarily make sense unless the company is a credible M&A target (dual track process) but you wouldn't show that in an IPO. If that is the case, you would show that to the company's management (if you had potential buyers).
I bank Valuation for IPO (Originally Posted: 01/03/2009)
Hi Guys,
I’m looking for some help from you guys. I am given a task to do a valuation of 2 year old investment bank which is private held. I have some projections from the bank. But I need valuation via comp analysis. I was told to do the valuation as if the company is going PUBLIC. I wanted to know what multiples to use and how would arrive a BETA for this company and CAPM or WACC its only 2 years old and not public. I do have the annual report and the CFO will be give me the info. How shall I start this project? Please ur help and input will be appreciated.
Thanks,
Find some comparable companies off Capital IQ and get their betas off Bloomberg. Unlever them and then take a mean or median, and then relever it to your firm's capital structure (do a Google search for the formula for levered to unlevered).
Use the annual report for cost of debt, either through interest expense divided by interest-bearing debt or explicit rates paid on loans. Then calculate the WACC as you normally would.
so much for edgar, sec.gov, yahoo! finance and marketwatch.
heh..capitaliq. i wonder why all analysts haven't been outsourced/replaced yet.
We're about to enter a Great Depression. Don't you want a president who's already dressed for it?
Ha.
I like Capital IQ for finding comparable companies mainly because the industry classifications are very detailed. I'd never use any of their numbers, though.
Also as far as multiples go, probably P/B and P/E.
Ipo valuation help* (Originally Posted: 04/28/2012)
Hi guys,
I need a help.
I am currently valuing Company A. My boss told me to do a case study figuring out the multiples of the competitors during their IPO couple of years ago.
So i started looking into the prospectus.
I am trying to find the EV of the company and a lil bit confused on the Market equity value part.
do i use offering price x total shares outstanding?
or i need to use the book value of the equity? (the company raised several tranches of equity with different price)
for the debt part, the company ipo on july 2008. however, the prospectus used 2007 FYE. is it ok to use 2007 debt,cash and minority interest or i need to use q2 2008 report.
Help will be much appreciated.
Thanks
Yes - market equity is the current stock price of the company (use Bloomberg, yahoo etc to find this) multiplied by the total shares outstanding (found on their 10-K or annual report etc).
When working out enterprise value you can adjust the figure to include preferred stock, options etc.
For the debt (or any figures) - keep it consistent and its best to use the latest figures. I was told to use LTM figures from when the IPO was completed. To calculate LTM you may need 2007 and 2008 reports.
I understand that market equity is current stock pirce x total shares outstanding.
However, during the IPO, there was no stock price available (bloomberg , yahoo and etc)
what i can get from the prospectus is the offering price (which is not a market price as well) x total shares outstanding.
thats why i am confused which number to use.
thank you for the help .. tho.
I'm quite sure you just take the current stock price - since its gone through the IPO this means that it will have a stock price now... then use the LTM figures to figure out the other parts.
This is a good question actually. Anyone else got some input?
Edit: just seen this: http://macabacus.com/valuation/comparable-companies i think your supposed to use comps only...
You can do that for Post Money valuation. What if pre-money valuation.
Even if you use post money valuation, the cash, debt will be changing.. since most companies will pay down their debt and increase their cash after IPO.
Its better to use pre-money because the other components of EV will not change. Just need to figure out what is the market equity value.
Input will be much appreciated.
Thanks.
Valuation methods - can they be used for IPOs? (Originally Posted: 12/28/2010)
or just M&A?
would you ever calculate the WACC for a IPO?
If you just want a direct answer to your question, then yes.
WACC is the discount rate used in your DCF in order to value the firm. Fundamentally, the valuation methods are the same from one thing to the next. Pricing an IPO requires far more than just finding the firms value, however. It as much an art as it is a technical skill.
edit: ah, I think I know what you were getting it... it seems odd to use WACC for a private company that may not have any market equity in its cap structure. In that case I think you would just look at comps for Beta's/cap structure, or use a target cap structure.
I'm not in yet in IB though...
You need to value the company, among other things, to set an appropriate initial selling price. Things change in rare cases where companies, such as Google, allow investors to bid on the initial price. Either way, some sort of analysis and valuation will need to be done to determine if the IPO is worthwhile.
I'm not sure about WACC to be honest.
edit: Didn't see above poster's answer before I commented.
Totally agree with anemonen, its all about fake Louis bags.
Valuing an IPO depends on the funding it has received. Especially in times like these where the debt markets haven't opened up, an IPO taking on debt funding may be difficult. In that case, I would assume that a large amount of your funding would be through equity- therefore your WACC is mainly equity based. Someone can correct me if I'm wrong, but you could take a comp beta and apply it to your equity portion of the WACC to determine an estimated WACC
Modeling Help -- IPO (Originally Posted: 02/11/2013)
Hey WSO --
Long time reader, first time poster. Wondering if someone can help me out here. I'm working at a boutique, and we're looking for an IPO template from a BB. Would really appreciate it if someone can PM one to me. Not for a live deal obviously -- just a template. Thanks.
Sent you a PM, hit me back with any questions.
Awesome profile BTW. How has econ class been treating you?
Stringer Bell,
Would you be so kind as to provide me the IPO template too please.
IPO Valuation, how much is company being valued at? (Originally Posted: 02/25/2014)
May be a dumb question, but when news articles and bankers say that this particular IPO company, company xyz is "being valued at $8 billion", do they mean the company's enterprise value (which I think) or equity value? Thanks.
Want an answer to this too...are these news articles referring to market cap or enterprise value?
Sed sed expedita consequuntur exercitationem et reprehenderit aspernatur aliquid. Autem vero distinctio placeat aut. Magnam assumenda est consequatur ratione sint ut. Rem et ea eos.
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...
Rem adipisci odio distinctio deserunt consectetur ea tempore. Modi non autem aut. Non et itaque officiis ducimus ea aut. Quas atque fugit facere explicabo.
Nam voluptatum sit reprehenderit qui molestiae ratione sit. Odio debitis suscipit dolorum dolore. Quae omnis et in autem nam aut ut. Harum est consequatur quaerat necessitatibus quia. Reiciendis voluptas qui dolor soluta.