Hello, I was reviewing a guide and am confused by this question / answer:
Walk me through an IPO valuation for a company that's about to go public.
- Unlike normal valuations, for an IPO valuation we only care about public
- After picking the public company comparables we decide on the most relevant
multiple to use and then estimate our company's Enterprise Value based on that.
- Once we have the Enterprise Value, we work backward to get to equity value
and also subtract the IPO proceeds because this is "new" cash.
- Then we divide by the total number of shares (old and newly created) to get its
When people say "An IPO priced at..." this is what they're
I don't really understand this at all. First, for step 3, why would you deduct the proceeds? Shouldn't the pro forma share price = (status quo implied equity value + new proceeds) / (existing shares + new shares)?
Second, for step 4, isn't this circular?
How to Evaluate an Initial Public Offering (IPO)
You need the price to get newly created shares and vice versa. I can't seem to get excel to solve something like this.
Most importantly, why is this not simply: (existing implied equity value) / (existing shares) = IPO price?
Would really appreciate some help!