Series 79: Sizing, Pricing, And Timing Judgments And Recommendations

Sizing, Pricing, and Timing Judgments and Recommendations

In theory, the price should be set at the level that maximizes the proceeds from the issue while still ensuring that the issue clears. Determining that price is tricky, and it is often said that pricing an offering involves a mixture of art and science.

At the most basic level, valuation is an important factor. Using the tools discussed in Chapter 1 and the facts learned in the due diligence process, what is the company worth? Many potential investors will also be attempting to determine the issuer’s valuation, and you can be sure they will notice if the offering price seems out of line with the value of the company. Pricing an issue is not nearly as simple as dividing a value by the number of shares—for example, a company with excellent growth prospects may justify a higher share price than its financials alone would suggest—but it helps to know what this number would be.

Some of the most valuable pricing data comes from the book-building process, and feedback from road shows and other marketing activities. The markets are based on supply and demand, and t