Valuation : Question 16
How do companies fix the price range for IPOs? Do they use special, pre-established links or not?
ALL THEMES
- COST OF CAPITAL
- FINANCIAL ANALYSIS
- FINANCIAL ENGINEERING
- FINANCIAL MANAGEMENT
- FINANCIAL POLICY
- VALUATION
The price range for IPOs is fixed by the financial analysts of the banks handling the IPO.
Analysts rely on information they have obtained on the company and use the valuation methods that are described in chapter 31 of the Vernimmen, i.e. mainly an analysis of listed peers and of the discounted cash flows of the company to be listed.
The bank then offers the price range to investors and depending on their appetite, the IPO price will be at the top or the bottom of the range, and even occasionally outside the range (e.g. Google), in line with a procedure similar to that described in chapter 25 of the Vernimmen.
Analysts rely on information they have obtained on the company and use the valuation methods that are described in chapter 31 of the Vernimmen, i.e. mainly an analysis of listed peers and of the discounted cash flows of the company to be listed.
The bank then offers the price range to investors and depending on their appetite, the IPO price will be at the top or the bottom of the range, and even occasionally outside the range (e.g. Google), in line with a procedure similar to that described in chapter 25 of the Vernimmen.
