How is IPO listing price decided?
The listing price of the IPO is the price at which it gets listed on the exchanges. You should not get confused between the listing price and the offer price. The latter is decided by the investment bank that helps the company with the IPO. The price at which the IPO gets listed depends on the demand for the IPO in the market. The number of orders at the time of listing decides the price at which the IPO gets listed. If the demand for the IPO shares exceeds supply, the IPO is likely to get listed at a price higher than the offer price, and vice-versa.
After the necessary fillings and approvals, the investment banks that are handling the transaction undertake pricing of the company. The offer price of an IPO is based on valuation, market factors, and business performance.
IPOs are priced in two ways. In a fixed price offer, the offer price of the shares is fixed by the investment bank based on the valuation; this process is usually applied when a small company is going public.
In the book-building process, the investors submit their bids to the investment banks promoting the IPO transaction. This process is used for a large enterprise to obtain a maximum issue price for the stock based on the investors’ expectations. Once investment bankers receive bids, they evaluate the bids provided by investors and arrive at an issue price for the company’s share.
IPO price is largely based on the past statements and future path of the company. The investment bankers who are bringing this IPO also want to price any IPO as high as possible so that they can make a good commission out of it.