Valuation

Abstract

Conversely, valuation, while a very important consideration in any IPO, is not something that can generally be provided with much certainty at the outset of a transaction. Market conditions, foreign exchange and interest rates, as well as trading multiples for comparable companies will obviously evolve over time and new facts may also be unearthed and affect whatever benchmarks are provided in the banks’ pitches. Moreover, lead banks will generally focus on the optimistic side when drumming up new business to issuers and their shareholders. Any departure from this can later on (and will fairly easily) be blamed on ‘adverse market conditions’, the investment banking terminology of choice to describe a lack of investor demand at higher prices. Accordingly, keeping track of valuation through dynamic regular updates (perhaps monthly, and highlighting any changes or new developments) once the banks are mandated is an important tool to avoid unwelcome surprises down the line.