Recently Priced IPOs

Learn more about recently priced IPOs

When an IPO (Initial Public Offering) is "priced," it refers to the process of determining the final price at which the company’s shares will be sold to public investors, typically large fund managers. Because investors have committed to buying the shares they’ve been allocated, the pricing represents the completion of the offering, and is the final step before the stock begins trading on a national exchange.

The IPO pricing follows extensive preparation, including roadshows and meetings with potential institutional investors. The IPO price is set by the underwriters, in consultation with the company's executives and financial advisors, and reflects factors like investor interest, market conditions, and the company's financial health.

The IPO price determines the company’s initial market capitalization and, along with the number of shares offered, the amount of capital raised by the company or selling shareholders. The offer price sends the market an important early signal of demand, and directly impacts first-day trading. If priced too high, the stock may struggle to gain traction, which creates negative publicity and sets a poor precedent in the minds of investors. Priced too low, and the company may leave money on the table that it could have raised.

How do companies price their IPOs?

Pricing an IPO is one of the most crucial and delicate steps for any company looking to go public. While the banks have a process to try to arrive at a price that fairly values the company while leaving upside to new investors, it’s more art than science. Here’s an overview of how companies price their IPOs:

Engaging Underwriters
Long before an IPO price is priced, a company must hire underwriters, usually investment banks, who will manage the offering. Underwriters analyze the company’s fundamentals, market conditions, and investor demand. They guide the company through the process, as well as pitch the deal and allocate shares to their buy-side contacts.

Valuation and Price Range
Underwriters work with the company to set an initial price range for the offering. This range is typically based on factors like the company's revenue, growth potential, industry trends, and comparable company valuations (often called "comps"). The underwriters also take into account macroeconomic conditions, such as market volatility or investor sentiment.

Roadshow and Investor Feedback
Once the price range is established, the company embarks on a "roadshow," where executives and underwriters present the business to potential institutional investors. During these presentations, the company gauges investor interest and receives feedback on the price range. If investor demand is strong, the price may be adjusted upward; if demand is tepid, it could be lowered. More often than not, when a company raises its IPO range, the stock sees a healthy gain on its first day.

Final Pricing
The final IPO price is set based on investor feedback, demand, and market conditions at the time of the offering. The goal is to balance the company’s desire to raise capital with ensuring the shares are priced attractively enough to generate interest and create post-IPO trading momentum. The final offer price is usually announced the night before shares begin trading, but sometimes it’s the morning of trading.

Factors Influencing the IPO Price
Several factors influence the final IPO price, including:

• Company fundamentals: Strong revenue growth, profitability, and a solid business model make a company more attractive to investors.
• Peer valuations: A company’s IPO price is often determined based on the relative valuations of comparable companies. IPO investors typically want to see a discount to public peers, to compensate them for the risk of owning a new and untested stock.
• Market conditions: A strong or weak stock market can have a significant impact on investor appetite. In particular, investors often look at the performance of recent IPOs.
• Investor sentiment: Positive or negative sentiment around the company, its sector, or the broader economy can push the price up or down.

Post-IPO Trading
After the IPO price is set and shares begin trading, market forces take over. If the IPO is priced conservatively, the stock may experience an initial "pop" as demand exceeds supply. On the other hand, if the IPO is priced too aggressively, the stock may fall below its offering price, signaling a lack of investor confidence.

Pricing an IPO is a balancing act. A well-priced IPO can provide the company with significant capital and positive public market exposure, while a misjudged price can impact a company’s investor relations and perception in the market.