Files & Resources: youtube-breakingintowallstreet-com.s3.amazonaws.com/107-09-IPO-Valuation-Model.xlsx youtube-breakingintowallstreet-com.s3.amazonaws.com/107-09-IPO-Valuation-Model.pdf Table of Contents: 0:00 Introduction 4:17 The Rationale and Assumptions Behind an IPO 7:47 Pricing vs. Trading Equity Value in an IPO 12:38 Primary vs. Secondary Shares and the Greenshoe or Overallotment Provision 16:10 Deal Size & Net Proceeds to Issuer 19:31 Implied Valuation Multiples 21:08 Alternate IPO Model Driven by Offering Price per Share and Shares Sold/Issued 24:05 Recap and Summary
As an investment banker trying to refresh memory on IPO accounting, I have to say this is a very helpful video with neat modelling and comprehensive explanation. Thank you very much!
At the beginning you mentioned forward p/e, but they are private companies, how could they have p/e ratios? how to get p/e for private firms? do you have videos for that?
Thanks for these, and for your BIWS program (I bought it as an undergrad) it helped me more than you guys could ever imagine and was worth every cent. Best of luck.
My friend I appreciate sharing your knowledge. This is definitely not for beginners...I'll have to get a degree to understand what you're saying. Very fast pace
I think estimating forward is the key point. Most of CEO believes the best scenario, but investors are skepticism. To make good valuation, companies should make strong reliable estimating. Management plan is effect on both forward profit and choosing comps. If you wanna boost the value, make the good management plan ! !
Tomo Kobayashi Yes, that's very true. Management plans are often extremely optimistic to the point of being unrealistic. This is why you often discount their numbers substantially when valuing companies...
Great vid - thanks! Question on the IPO Pricing Discount %: how is this generally determined in practice? Is using a DLOM appropriate, or should I be thinking about this differently?
Yes, you could think of it like that. In most developed markets it is just set to 15% and relatively little thought is given to it, especially for a mature private company that resembles a public company. A lot of it also comes down to how much investor interest there is in the offering - if more people are attempting to buy the company's stock, the banks running the offering may be able to offer a lower discount and still get the deal done on favorable terms.
Thank you for the nice video and the excel file! I just have one question and it will be super great if you could answer. Why is the amount of secondary shares sold in IPO included in the Base Deal Size? Is it because the IB is responsible for selling shares from existing investors?
Thank you for the video and model. Can you please explain why in order to calculate the discounted implied post money value, you don't multiply the @ Trading Value by 85%? Why do you divide it by (1+the discount)?
You could do it that way as well, it doesn't really matter. We set it up this way so that the value at Trading is exactly 15% higher, but it makes a small difference.
Hi, how could the company or the underwriter increase the price or "nudge" the institutions/banks/funds to pay more? Do they use their option to not follow through with the IPO/Follow On offer? Thanks.
Usually via supply and demand... they say the company will only make X shares available, and there are currently Y investors willing to pay $Z for each share. So, if a new investor wants to join that group, they also need to pay $Z because the company is not willing to issue more than X shares. This obviously only works if it's an in-demand issuance, i.e., the opposite of the WeWork debacle.
hi, not understand about the row 30 formula. Equity value@Trading x (1-pricing discount %), not able to get Pricing discount amount. may i know am i understand any part wrongly?
Hey! Really helpful video! I'm not able to access the excel workings sheet. Could I get the access to the same if you could share it to my email? Would be of great help!
Hi, Why did we back out the funds raised from the implied post money equity value? Is this because cash is part of equity? On a related note, does this mean then that the P/E of cash is the current P/E of the firm? Why would an investor pay more for a dollar of cash? Thanks!
Yes, additional Cash boosts Equity Value because Equity Value reflects the value of ALL Assets but only to common equity investors. And Cash is an Asset. Investors pay for shares in the company. The value of those shares is influenced by all the Assets the company has, but the investor isn't literally paying money just to get Cash - the investor gets shares, which can actually appreciate in value (unlike Cash).
Thanks for another outstanding video! I just have 1 question: when we use P/E multiples, do we use multiples of domestic firms from the same industry or it's only industry that matters? Thanks in advance.
It depends on the deal, industry, and region. If you can find at least 4-5 peer companies in the same country in the same industry, you can use those. If not, you can expand the set and look at different countries or a broader industry screen.
Yes, it is sensitive to the capital structure. But it's also standard practice to use P/E multiples in an IPO analysis, partially because retail investors are more familiar with them. However, you could easily use an EV/EBITDA multiple instead if you change around the calculations a bit.
what happens if the company going into IPO has negative PF EPS? What metrics are you using instead of Forward PE multiples in your range of valuations?
Bankers and the management team set it and then show the proposed share price to the institutional investors that buy the first shares before the company is officially public. They adjust the price up or down based on the investors' reaction to that price. The research department is not involved at all and only starts covering the company after the IPO.
Hello, model is very intuitive and learning experience but I would like to know few things: Why we are not taking out the range of per share price for the retail investors & why only institutional investor range is derived in model ? What is the reason behind it ? Can we follow some other method of IPO Valuation except forward P/E multiples ? Also, in case of IPOs are making losses, P/E multiple would Not be of any use, what is the remedy for this ? Why 1 year forward P/E multiples ? Which sectors we can apply such models ? Thanks in advance for your answers. I would heartily appreciate your earliest response
The answer to your questions is "It's a simplified example intended to illustrate the main concepts, and yes, in a more complex model, we might consider retail investors or multiples other than P/E multiples, such as EV / EBIT or EV / EBITDA, especially if the company has negative Net Income."
@@financialmodeling Thank you for your early feedback. I just want to understand why we have included institutional investor base to illustrate the concepts and not retail investor base in this modelling ? That's what confusing me
@@financialmodeling Also, please give me a link to complete this entire IPO valuation course if you have one. I would like to consider opting this course if it has remaining topics to illustrate the further concepts..
Really amazing work !!! Out of curiosity , why does your channel have so little content on IPO's, considering that IPO's are also a major division of IBD ? Is work in IPO's less modeling intensive and more marketing oriented ?
Because there is very little to say about IPOs on the technical/modeling side. Most of the work required to take a company public is qualitative and involves speaking with customers, investors, other teams at the bank, answering questions about the company's business, etc. While that can be interesting, it's extremely difficult to make engaging videos about those topics without a huge budget. Also, a lot of the technical work required for IPOs, such as company valuation, is already well-covered here and there's nothing specific to IPOs in it.
Why is the pricing discount calculated off of the "implied post-money equity value @ pricing" and not off of the "value @ trading"? I.e., why can't we take $3,079.1 times 0.85 to find "implied post-money equity value @ pricing"? Thank you in advance!
Because the pricing discount is based on how the company sets its price in the initial offering. It can't be linked to the value at trading because no one knows how the company will trade before the IPO takes place. It might start at one multiple but then change significantly by the end of the day.
Hey great vid I just have a few questions: 1. Does post money equity value @ pricing mean the equity value after shares have been sold at discount to institutional investors but not yet public and post money equity value @ trading is the equity value after shares have been issued to the public? 2. Is "issuer-existing shares outstanding" the number of shares that have been sold at discount to institutional investors (not public yet) 3. If so, how come "implied pre money equity value" which I'm assuming is equity value before selling shares to institutional investors, you calculated it by multiplying "implied post money equity value @ pricing" - gross net proceeds, shouldn't it be "implied post money equity value @ pricing - (issuer existing shares outstanding x implied offering price) because that it the amount that was raised from institutional investors? 4. And lastly, sorry for all the questions but i don't understand the secondary shares, isn't secondary shares, shares that stockholders already own and want to tell to other investors? If this company hasn't gone public yet, how come there are secondary shares to be sold? Thank you so much!!
1) Yes, but not exactly because both are after the shares have been issued. @ Trading just means after the discount has gone away and the company has gone public. 2) No. This is the number of shares the company had before going public at all. 3) Implied Pre-Money Equity Value is just Implied Post-Money Equity Value @ Pricing - Gross Primary Proceeds, so I don't know what you're referring to. It represents the company's Equity Value before offering shares at a discount or going public at all. 4) Because companies have many investors before they go public, such as venture capital firms, angel investors, institutional investors that also do VC and early-stage funding, some growth equity and private equity firms, etc. And insiders such as management can also sell secondary shares in IPOs.
sorry just one clarification, when you say implied post money equity value @ trading and becoming a "publicly traded entity", does that mean that the IPO has finished and shares are just traded amongst secondary investors? If that is so, how come implied post money equity value @ trading is higher than implied post money equity value @ pricing if institutional investors who purchased shares in the IPO with a discount are just selling shares to the public on the secondary market at a higher price, how would a company's equity value increase when shares are sold on the secondary market? Thank you so much for your time, much appreciated!
It means the IPO has finished and the shares are now trading on the stock market, so anyone can buy and sell them. The value at trading is higher than the value at pricing because investors who purchased shares at pricing received a discount, so all the shares had lower prices at that time. When the shares start trading publicly, they automatically become more valuable because now there is liquidity. If you buy a share, you can easily sell it. If you buy shares at pricing, by contrast, you may get a discount on the price but the risk is also higher due to possible lock-up periods, restrictions on sales, the lack of a public market for shares at that time, and so on.
Hi, Thanks for the video. Just wondering what does the Total Offering Size (C55) actually tell us? And why is it bigger than the amount the company is aiming to raise? Another question: when calculating the implied offering price per share, you subtract total funds raised in IPO from the implied post-money equity value at pricing, before dividing the difference by the existing shares. Shouldn't we only deduct the primary share of the offering to get the implied pre-money equity, as the secondary shares just switch hands? Thank you in advance!
The Total Offering Size is bigger than the amount the company initially plans to raise because it includes the over-allotment (Greenshoe) provision, which lets the company raise more funds if there's a lot of investor demand. Row 55 gives you the total amount raised in the deal. The $1,000 we're subtracting ("IPO_Offering_Size") is actually the amount of primary proceeds if you look at row 57.
It would make a perfect sense, but if you set the greenshoe provision to 0%, row 55 still gives higher value than 1bn that's intended to be raised. In fact, it gives exactly the same value as before. The total offering size stays the same, regardless of the %-age selected for the greenshoe. Another thing that strikes me as a mystery is that pre-money equity value depends on the funds raised in the IPO, as you subtract the 1bn from implied post-money equity value @ pricing to get the pre-money. So if we wanted to raise 3.5bn, would the implied offering price would be negative? Intuitively, the pre-money equity value should not depend on funds raised. it's just x, regardless of what we are raising. Sorry for bombarding with so many questions and thanks again for the explanations and video :)
Your questions are beyond the scope of what we can answer in this channel, as only short/simple questions are covered. If you have signed up for one of our courses or services, feel free to ask your more detailed questions there.
If you value a company for deciding if you want to invest youreself in the IPO it would make more sense to just estimate the intrinsic value. Wouldnt it?
Yes... but you also have to see the discount it will trade at in an IPO or just before the IPO to see if it's worth the investment, which is the point of this tutorial.
When you calculated the 15% discount, what is it a discount to exactly because if it was a discount to the implied post money equity value @ trading of 3,079.1, wouldn't you just multiply 0.85 x 3,079.1, why did u divide 3,079.1 by 1.15? Thanks!!
And also, what is the difference between the primary shares issued in IPO and the pro-forma shares outstanding, post IPO, because how can the number of outstanding shares be more that what was issues? Thanks a lot
That is just the convention for determining the discount here. You could set it up the other way you suggested and no one would care or notice (most likely).
I am working through the Breaking into Wall Steet 400 Investment Banking Questions, and it says on the PDF to take (Equity Value - Cash from IPO Proceeds)/(Old Shares + Newly Created Shares). But you only divided by the old shares? Can you explain why there is a disparity regarding the shares? I have the question from Breaking Into Wall Street Below: Walk me through an IPO valuation for a company that’s about to go public? 1. Unlike normal valuations, for an IPO valuation we only care about public company comparables. 2. 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. 3. 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. 4. Then we divide by the total number of shares (old and newly created) to get its per-share price. When people say “An IPO priced at…” this is what they’re referring to.
I'm going to politely decline to answer your question because you're using a very, very old version of the Interview Guide written ~15 years ago that is quite outdated and bad. And yes, I understand that it's trivial to find online since people have uploaded it everywhere, but that doesn't make it good. It just means people are good at sharing short PDF files online, which is about as difficult as breathing oxygen. I understand that you may not want to pay for newer versions of this guide or anything else we offer, and that's fine (I was a student once - I remember). But in this case, I would strongly recommend going by the free tutorials in this channel and the Knowledge Base pages on our site rather than this very old and not-so-good Interview Guide.
@@financialmodeling Thank you for the response. The PDF that I received was from friend, I didn't realize there were newer versions. I'll be sure to get the newer version.
@@nyokabi123 Sure, and no pressure either way. My point was just that that old guide is so bad that even these free tutorials and our other free material is better. So, up to you, but if anything, I would recommend this channel, especially content from the past few years, over older versions of that guide.
@@financialmodeling can you please call me i need to really understand how to valuate IPO if its worth investing, i am new to this industry it would help-313-920-2238
Please see the videos on oil & gas valuation. Use a NAV model to project the company's cash flows over 50-100 years, discount them to their present value, and then add the approximate values of the other business segments the company has. The main difference the IPO makes there is that the tax rate is a lot lower since it will no longer be run solely for the Saudi government's benefit.
"Price to Earnings" or Equity Value / Net Income or Price per Share / Earnings per Share. It's a way to measure how expensive a company is, or the amount of potential earnings you're getting for the price you're paying.
+economixxxx It's just the convention that is often used in these models. The idea is that it's not really a "discount" from trading levels, but instead a premium over whatever the company is priced at. However, it is usually explained to clients as a "discount" because the company isn't yet public and so its exact pricing isn't known.
@@financialmodeling so if we are valuing a private company and public comps say that it worth $1000 m (based on market multiples), and let's say 15 % discount for illiquidity, what should it worth after that discount?
@@paulaguilar_985 You're asking about something different - the private company discount, not the IPO discount used in IPO models. For the private company discount for illiquidity, the typical discount factors range from 15% to 30% depending on the company structure and size and shareholder base. So the private company might be worth only $700 - $850 m based on that.
Hello, i have a doubt and i would realy appreciate if someone can help me with it, Whene you are trying to calculate the price per share in the excel, u take the "Implied Post-Money Equity Value" u subtract the 1000M that u wanna raise and u divide it beetwen the number of shares. What i dont understand is why u subtract the 1000M, whene u calculate the "Implied Post-Money Equity Value" u are using the net beneficts of the company and with the PER u get this "Implied Post-Money Equity Value", this net beneficts are the beneficts that the company earns with out any extra IPO money so the value of the company that u use for calculating the value por share should be "Implied Post-Money Equity Value" with out the subtract of 1000M? PostScripts: english is not my first language so might not explain well and in a polite way my doubt, sorry for that
You subtract the funds raised in the IPO because you are trying to establish the company's Equity Value *before* the IPO takes place. Raising equity will increase a company's Equity Value, so you're trying to see what its Equity Value should be *before* that takes place and therefore what its share price should be.
Why would it not be relevant? If IPOs still happen, this model is still relevant. We do set up IPO models a bit differently now, but this one is still fine as a reference. Most concepts in accounting, corporate finance, and valuation do not "go out of date" - just look at bank presentations from 1-2 decades ago and see how little has changed.
Files & Resources:
youtube-breakingintowallstreet-com.s3.amazonaws.com/107-09-IPO-Valuation-Model.xlsx
youtube-breakingintowallstreet-com.s3.amazonaws.com/107-09-IPO-Valuation-Model.pdf
Table of Contents:
0:00 Introduction
4:17 The Rationale and Assumptions Behind an IPO
7:47 Pricing vs. Trading Equity Value in an IPO
12:38 Primary vs. Secondary Shares and the Greenshoe or Overallotment Provision
16:10 Deal Size & Net Proceeds to Issuer
19:31 Implied Valuation Multiples
21:08 Alternate IPO Model Driven by Offering Price per Share and Shares Sold/Issued
24:05 Recap and Summary
As an investment banker trying to refresh memory on IPO accounting, I have to say this is a very helpful video with neat modelling and comprehensive explanation. Thank you very much!
Thanks for watching!
I cant thank you guys enough for making these videos available for everyone. This is amazing !!
Thanks for watching!
A genuine and heartfelt thanks for the amazing videos. A real inspiration and tool for gaining valuable knowledge :) kudos!
Rohen Wijeyesekera Thanks for watching!
The only clear video I got on IPO valuation.
Thanks for watching!
I really enjoy your tutorials. Thank you for your effort!
+Julia Kochendoerfer Thanks for watching!
learned more here than my online and class courses. cheers man
Thanks for watching!
At the beginning you mentioned forward p/e, but they are private companies, how could they have p/e ratios? how to get p/e for private firms? do you have videos for that?
The P/E multiples are based on the private company's comparable public companies.
Thanks for these, and for your BIWS program (I bought it as an undergrad) it helped me more than you guys could ever imagine and was worth every cent. Best of luck.
Tabris Esfahani Thanks, glad to hear it!
My friend I appreciate sharing your knowledge. This is definitely not for beginners...I'll have to get a degree to understand what you're saying. Very fast pace
Thanks for watching!
Your video has been great help to me. I got lost in transit at first, but third time round made a bit more sense. Big thank you
Thanks for watching!
I think estimating forward is the key point. Most of CEO believes the best scenario, but investors are skepticism. To make good valuation, companies should make strong reliable estimating.
Management plan is effect on both forward profit and choosing comps. If you wanna boost the value, make the good management plan ! !
Tomo Kobayashi Yes, that's very true. Management plans are often extremely optimistic to the point of being unrealistic. This is why you often discount their numbers substantially when valuing companies...
Great work, thanks.
Thanks for watching!
I really appreciate this video. It really helps me with my videos.
Thanks for watching!
As always, excellent tutorial. Thank you!!
Thanks for watching!
Amazing video!! Very clear and helpful
Thanks for watching!
Great vid - thanks! Question on the IPO Pricing Discount %: how is this generally determined in practice? Is using a DLOM appropriate, or should I be thinking about this differently?
Yes, you could think of it like that. In most developed markets it is just set to 15% and relatively little thought is given to it, especially for a mature private company that resembles a public company. A lot of it also comes down to how much investor interest there is in the offering - if more people are attempting to buy the company's stock, the banks running the offering may be able to offer a lower discount and still get the deal done on favorable terms.
wow u deserve more
Thanks for watching!
Thank you for the nice video and the excel file! I just have one question and it will be super great if you could answer. Why is the amount of secondary shares sold in IPO included in the Base Deal Size? Is it because the IB is responsible for selling shares from existing investors?
Yes.
Thank you for the video and model. Can you please explain why in order to calculate the discounted implied post money value, you don't multiply the @ Trading Value by 85%? Why do you divide it by (1+the discount)?
You could do it that way as well, it doesn't really matter. We set it up this way so that the value at Trading is exactly 15% higher, but it makes a small difference.
Thank you.
Thanks for watching!
Brilliant video, I have become your new number one fan. Best wishes from India.
dhanush m Thanks for watching!
Hi, how could the company or the underwriter increase the price or "nudge" the institutions/banks/funds to pay more? Do they use their option to not follow through with the IPO/Follow On offer? Thanks.
Usually via supply and demand... they say the company will only make X shares available, and there are currently Y investors willing to pay $Z for each share. So, if a new investor wants to join that group, they also need to pay $Z because the company is not willing to issue more than X shares. This obviously only works if it's an in-demand issuance, i.e., the opposite of the WeWork debacle.
Can u pls suggest which playlist of yours shall I start with if I have to give an interview in Financial due diligence
Start by looking at the accounting and financial statement analysis ones.
hi, not understand about the row 30 formula.
Equity value@Trading x (1-pricing discount %), not able to get Pricing discount amount.
may i know am i understand any part wrongly?
Sorry, I don't understand your question.
Hey! Really helpful video! I'm not able to access the excel workings sheet. Could I get the access to the same if you could share it to my email? Would be of great help!
Click "Show More" and scroll to the links and click them.
Hi,
Why did we back out the funds raised from the implied post money equity value? Is this because cash is part of equity?
On a related note, does this mean then that the P/E of cash is the current P/E of the firm? Why would an investor pay more for a dollar of cash?
Thanks!
Yes, additional Cash boosts Equity Value because Equity Value reflects the value of ALL Assets but only to common equity investors. And Cash is an Asset. Investors pay for shares in the company. The value of those shares is influenced by all the Assets the company has, but the investor isn't literally paying money just to get Cash - the investor gets shares, which can actually appreciate in value (unlike Cash).
Thanks for another outstanding video! I just have 1 question: when we use P/E multiples, do we use multiples of domestic firms from the same industry or it's only industry that matters?
Thanks in advance.
It depends on the deal, industry, and region. If you can find at least 4-5 peer companies in the same country in the same industry, you can use those. If not, you can expand the set and look at different countries or a broader industry screen.
Why are we using the P/E multiple? Isn't it capital structure sensitive? What if the comparable companies have different capital structures?
Yes, it is sensitive to the capital structure. But it's also standard practice to use P/E multiples in an IPO analysis, partially because retail investors are more familiar with them. However, you could easily use an EV/EBITDA multiple instead if you change around the calculations a bit.
what happens if the company going into IPO has negative PF EPS? What metrics are you using instead of Forward PE multiples in your range of valuations?
You could use TEV / EBITDA, TEV / Revenue, or any of the other standard multiples.
Who sets the valaution? Is it Resarch department or IBD? As far as I know IBD cannot influence due to Chinese wall
Bankers and the management team set it and then show the proposed share price to the institutional investors that buy the first shares before the company is officially public. They adjust the price up or down based on the investors' reaction to that price. The research department is not involved at all and only starts covering the company after the IPO.
Great video, thanks a lot. Can you please make a video on "valuation of demerger/spin off"?
We do not cover this topic currently but hope to do so in the future.
Hi, awesome videos. I'm currently doing an IPO valuation, can i have the excel files? Thanks a lot
Click "Show More". Scroll to the bottom. Click the links.
Hello, model is very intuitive and learning experience but I would like to know few things:
Why we are not taking out the range of per share price for the retail investors & why only institutional investor range is derived in model ? What is the reason behind it ?
Can we follow some other method of IPO Valuation except forward P/E multiples ? Also, in case of IPOs are making losses, P/E multiple would Not be of any use, what is the remedy for this ?
Why 1 year forward P/E multiples ? Which sectors we can apply such models ?
Thanks in advance for your answers. I would heartily appreciate your earliest response
The answer to your questions is "It's a simplified example intended to illustrate the main concepts, and yes, in a more complex model, we might consider retail investors or multiples other than P/E multiples, such as EV / EBIT or EV / EBITDA, especially if the company has negative Net Income."
@@financialmodeling Thank you for your early feedback. I just want to understand why we have included institutional investor base to illustrate the concepts and not retail investor base in this modelling ? That's what confusing me
@@financialmodeling Also, please give me a link to complete this entire IPO valuation course if you have one. I would like to consider opting this course if it has remaining topics to illustrate the further concepts..
Amazing Lecture, can i can get excel file as well please it would make more sense.
Click "Show More." Scroll to the bottom. Click the links.
Amazing videos! Could you do a video about SPAC mergers?
We cover reverse mergers in our full courses, which are similar / basically the same.
thanks for this, very helpful. Where can I find the excel file?
Click "More" or "Show More" and scroll to the bottom for the links.
@@financialmodeling Cant see the file either. There are two links and one of them does not work. Can you kindly send the link here?
@@financialmodelingThank you for the quick response. Unfortunately, I cannot open one of the links
youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com/107-09-IPO-Valuation-Model.xlsx@@Ralf-ww9oe
youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com/107-09-IPO-Valuation-Model.xlsx@@Eisor1646
Really amazing work !!! Out of curiosity , why does your channel have so little content on IPO's, considering that IPO's are also a major division of IBD ? Is work in IPO's less modeling intensive and more marketing oriented ?
Because there is very little to say about IPOs on the technical/modeling side. Most of the work required to take a company public is qualitative and involves speaking with customers, investors, other teams at the bank, answering questions about the company's business, etc. While that can be interesting, it's extremely difficult to make engaging videos about those topics without a huge budget. Also, a lot of the technical work required for IPOs, such as company valuation, is already well-covered here and there's nothing specific to IPOs in it.
@@financialmodeling I thought so !! thanks a lott !
Thank you.
Thanks for watching!
Why is the pricing discount calculated off of the "implied post-money equity value @ pricing" and not off of the "value @ trading"? I.e., why can't we take $3,079.1 times 0.85 to find "implied post-money equity value @ pricing"? Thank you in advance!
Because the pricing discount is based on how the company sets its price in the initial offering. It can't be linked to the value at trading because no one knows how the company will trade before the IPO takes place. It might start at one multiple but then change significantly by the end of the day.
@@financialmodeling Thank you - very helpful!
Hey great vid I just have a few questions:
1. Does post money equity value @ pricing mean the equity value after shares have been sold at discount to institutional investors but not yet public and post money equity value @ trading is the equity value after shares have been issued to the public?
2. Is "issuer-existing shares outstanding" the number of shares that have been sold at discount to institutional investors (not public yet)
3. If so, how come "implied pre money equity value" which I'm assuming is equity value before selling shares to institutional investors, you calculated it by multiplying "implied post money equity value @ pricing" - gross net proceeds, shouldn't it be "implied post money equity value @ pricing - (issuer existing shares outstanding x implied offering price) because that it the amount that was raised from institutional investors?
4. And lastly, sorry for all the questions but i don't understand the secondary shares, isn't secondary shares, shares that stockholders already own and want to tell to other investors? If this company hasn't gone public yet, how come there are secondary shares to be sold?
Thank you so much!!
1) Yes, but not exactly because both are after the shares have been issued. @ Trading just means after the discount has gone away and the company has gone public.
2) No. This is the number of shares the company had before going public at all.
3) Implied Pre-Money Equity Value is just Implied Post-Money Equity Value @ Pricing - Gross Primary Proceeds, so I don't know what you're referring to. It represents the company's Equity Value before offering shares at a discount or going public at all.
4) Because companies have many investors before they go public, such as venture capital firms, angel investors, institutional investors that also do VC and early-stage funding, some growth equity and private equity firms, etc. And insiders such as management can also sell secondary shares in IPOs.
sorry just one clarification, when you say implied post money equity value @ trading and becoming a "publicly traded entity", does that mean that the IPO has finished and shares are just traded amongst secondary investors?
If that is so, how come implied post money equity value @ trading is higher than implied post money equity value @ pricing if institutional investors who purchased shares in the IPO with a discount are just selling shares to the public on the secondary market at a higher price, how would a company's equity value increase when shares are sold on the secondary market?
Thank you so much for your time, much appreciated!
It means the IPO has finished and the shares are now trading on the stock market, so anyone can buy and sell them.
The value at trading is higher than the value at pricing because investors who purchased shares at pricing received a discount, so all the shares had lower prices at that time.
When the shares start trading publicly, they automatically become more valuable because now there is liquidity. If you buy a share, you can easily sell it.
If you buy shares at pricing, by contrast, you may get a discount on the price but the risk is also higher due to possible lock-up periods, restrictions on sales, the lack of a public market for shares at that time, and so on.
Thanks, is there an updated version of this?
No, this is all we have.
hey how did you determine the existing shares issued value to be 66.914 ?
It was taken from this company's S-1 registration document to file for the IPO.
Hi,
Thanks for the video. Just wondering what does the Total Offering Size (C55) actually tell us? And why is it bigger than the amount the company is aiming to raise?
Another question: when calculating the implied offering price per share, you subtract total funds raised in IPO from the implied post-money equity value at pricing, before dividing the difference by the existing shares. Shouldn't we only deduct the primary share of the offering to get the implied pre-money equity, as the secondary shares just switch hands?
Thank you in advance!
The Total Offering Size is bigger than the amount the company initially plans to raise because it includes the over-allotment (Greenshoe) provision, which lets the company raise more funds if there's a lot of investor demand. Row 55 gives you the total amount raised in the deal.
The $1,000 we're subtracting ("IPO_Offering_Size") is actually the amount of primary proceeds if you look at row 57.
It would make a perfect sense, but if you set the greenshoe provision to 0%, row 55 still gives higher value than 1bn that's intended to be raised. In fact, it gives exactly the same value as before. The total offering size stays the same, regardless of the %-age selected for the greenshoe. Another thing that strikes me as a mystery is that pre-money equity value depends on the funds raised in the IPO, as you subtract the 1bn from implied post-money equity value @ pricing to get the pre-money. So if we wanted to raise 3.5bn, would the implied offering price would be negative? Intuitively, the pre-money equity value should not depend on funds raised. it's just x, regardless of what we are raising. Sorry for bombarding with so many questions and thanks again for the explanations and video :)
Your questions are beyond the scope of what we can answer in this channel, as only short/simple questions are covered. If you have signed up for one of our courses or services, feel free to ask your more detailed questions there.
Can you send me your excel file ? it will be so much helpfull 🙂😀
Click "Show More" and scroll to the bottom.
I enjoyed your video. Learned so much about IPOs, would it be possible to receive a copy of the spreadsheet?
Never mind! I found the file. Thank you!
If you value a company for deciding if you want to invest youreself in the IPO it would make more sense to just estimate the intrinsic value. Wouldnt it?
I know that this video is about another topic. :)
Yes... but you also have to see the discount it will trade at in an IPO or just before the IPO to see if it's worth the investment, which is the point of this tutorial.
+Mergers & Inquisitions i know just a thought especially if you invest long term.
Excellent videos! Can I have access to the excel file? I'm thinking of going public and want to see how number could work. Thx!!
Click "Show More". Scroll down to Resources. Click the links.
When you calculated the 15% discount, what is it a discount to exactly because if it was a discount to the implied post money equity value @ trading of 3,079.1, wouldn't you just multiply 0.85 x 3,079.1, why did u divide 3,079.1 by 1.15? Thanks!!
And also, what is the difference between the primary shares issued in IPO and the pro-forma shares outstanding, post IPO, because how can the number of outstanding shares be more that what was issues? Thanks a lot
That is just the convention for determining the discount here. You could set it up the other way you suggested and no one would care or notice (most likely).
Primary shares represent new shares issued in the offering. Pro-forma shares outstanding equal the amount pre-IPO + the new shares issued in the IPO.
Thanks!!
Hi! Your Excel template is beautiful, is that downloadable for visors?
+Wan Karl Click on "Show More" under the video and scroll to the bottom. Click the links under "RESOURCES".
I am working through the Breaking into Wall Steet 400 Investment Banking Questions, and it says on the PDF to take (Equity Value - Cash from IPO Proceeds)/(Old Shares + Newly Created Shares). But you only divided by the old shares? Can you explain why there is a disparity regarding the shares?
I have the question from Breaking Into Wall Street Below:
Walk me through an IPO valuation for a company that’s about to go public?
1. Unlike normal valuations, for an IPO valuation we only care about public company comparables.
2. 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.
3. 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.
4. Then we divide by the total number of shares (old and newly created) to get its
per-share price. When people say “An IPO priced at…” this is what they’re referring to.
I'm going to politely decline to answer your question because you're using a very, very old version of the Interview Guide written ~15 years ago that is quite outdated and bad. And yes, I understand that it's trivial to find online since people have uploaded it everywhere, but that doesn't make it good. It just means people are good at sharing short PDF files online, which is about as difficult as breathing oxygen.
I understand that you may not want to pay for newer versions of this guide or anything else we offer, and that's fine (I was a student once - I remember). But in this case, I would strongly recommend going by the free tutorials in this channel and the Knowledge Base pages on our site rather than this very old and not-so-good Interview Guide.
@@financialmodeling Thank you for the response. The PDF that I received was from friend, I didn't realize there were newer versions. I'll be sure to get the newer version.
@@nyokabi123 Sure, and no pressure either way. My point was just that that old guide is so bad that even these free tutorials and our other free material is better. So, up to you, but if anything, I would recommend this channel, especially content from the past few years, over older versions of that guide.
I'm sorry but i can't find where to download the spreadsheet. is this something that has to be sent to me or am i missing a link?
Ok nm i got it. Thanks for making this available.
Hi! Would you share the excel again? This link you provided does not work anymore :)
youtube-breakingintowallstreet-com.s3.amazonaws.com/107-09-IPO-Valuation-Model.xlsx
Really nice videos. Helped a lot. Can we get access to the excel files?
+Yogesh Jaiswal Got it.. Thanks
+Yogesh Jaiswal Bhaiii !!!!!
can I have this excel file as well?
Can you share this excel file with me please? Thx!!
Can I get the excel file too?
Greeat video is tehre a way I may use your coaching experience I am new to this
Thanks for watching! Feel free to look at the coaching packages on our site to learn more.
@@financialmodeling can you please call me i need to really understand how to valuate IPO if its worth investing, i am new to this industry it would help-313-920-2238
Thank you very much. Can we get access to the excel files?
Click "Show More". Scroll to the bottom. Click the links.
Soo how would you value Aramco IPO?
Please see the videos on oil & gas valuation. Use a NAV model to project the company's cash flows over 50-100 years, discount them to their present value, and then add the approximate values of the other business segments the company has. The main difference the IPO makes there is that the tax rate is a lot lower since it will no longer be run solely for the Saudi government's benefit.
Thank you very much. Can I get the excel file?
Click "Show More". Scroll to the bottom. Click the links.
can i have the excel file? i clicked the resources link, can't download any excel file ;0
It is there... scroll down to the bottom... click the links. I don't even know why I'm explaining this.
what does the P/E multiples mean?
"Price to Earnings" or Equity Value / Net Income or Price per Share / Earnings per Share. It's a way to measure how expensive a company is, or the amount of potential earnings you're getting for the price you're paying.
How is the multiple calculated?
The same way any multiple is calculated... Equity Value or Enterprise Value divided by the appropriate financial metric that pairs with it.
May i also request for the excel file? thank you!
Click "Show More". Scroll to the bottom. Click again.
if there's a 15% discount, why not simply multiply by 1-15% ? dividing by 1+15% gives less of a discount
+economixxxx It's just the convention that is often used in these models. The idea is that it's not really a "discount" from trading levels, but instead a premium over whatever the company is priced at. However, it is usually explained to clients as a "discount" because the company isn't yet public and so its exact pricing isn't known.
@@financialmodeling so if we are valuing a private company and public comps say that it worth $1000 m (based on market multiples), and let's say 15 % discount for illiquidity, what should it worth after that discount?
@@paulaguilar_985 You're asking about something different - the private company discount, not the IPO discount used in IPO models. For the private company discount for illiquidity, the typical discount factors range from 15% to 30% depending on the company structure and size and shareholder base. So the private company might be worth only $700 - $850 m based on that.
Hello, i have a doubt and i would realy appreciate if someone can help me with it,
Whene you are trying to calculate the price per share in the excel, u take the "Implied Post-Money Equity Value" u subtract the 1000M that u wanna raise and u divide it beetwen the number of shares.
What i dont understand is why u subtract the 1000M, whene u calculate the "Implied Post-Money Equity Value" u are using the net beneficts of the company and with the PER u get this "Implied Post-Money Equity Value", this net beneficts are the beneficts that the company earns with out any extra IPO money so the value of the company that u use for calculating the value por share should be "Implied Post-Money Equity Value" with out the subtract of 1000M?
PostScripts: english is not my first language so might not explain well and in a polite way my doubt, sorry for that
You subtract the funds raised in the IPO because you are trying to establish the company's Equity Value *before* the IPO takes place. Raising equity will increase a company's Equity Value, so you're trying to see what its Equity Value should be *before* that takes place and therefore what its share price should be.
thanks very much for the answer
Do you still have the Excel file for this?
Click "Show More". Scroll to the bottom. Click again.
Can anyone tell me where to find the excel file?
Click "Show More". Scroll to the bottom, and click the links under Resources.
From where can we download the excel sheet?
Click "Show More". Scroll to the bottom. Click the links.
Can I get the excel model?
Click "Show More" under the video. Go to Resources at the bottom. Click the links.
Can i have access to the excel file please?
Click "Show More". Scroll to RESOURCES at the bottom. Click again.
Can I get the excel file ? Thanks
Click "Show More". Scroll to the bottom. Click the links.
can you share the excel files?
Click "Show More". Scroll down to "Resources". Click the links.
how do download the excell file
+Imani Blackmon Click "Show More". Scroll to RESOURCES at the bottom. Click again.
No and no, sorry.
Is this still relevant?
Why would it not be relevant? If IPOs still happen, this model is still relevant. We do set up IPO models a bit differently now, but this one is still fine as a reference. Most concepts in accounting, corporate finance, and valuation do not "go out of date" - just look at bank presentations from 1-2 decades ago and see how little has changed.