8.5. Sizing, Pricing, and Timing the Offering

While the pricing call itself typically occurs just after the start of the post-effective period, much of the strategizing that goes into it occurs while the book is being built. The decision about how to price an offering affects, and is in turn affected by, decisions over the issue’s size and how best to time the start of the offering. Broad sizing, pricing, and timing decisions are made early on in the offering process, before the filing of the registration statement. For example, since offering prices are expressed as a fairly narrow range, basic pricing analysis must take place well before the final pricing decision.

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. Valuation is frequently the starting point, especially for IPOs. Using the tools discussed in Chapters 3 and 4, 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 value, and you can be sure they will notice i