2. Net Proceeds and Post-IPO Value

A: IPO Net Proceeds

Let us start with the computation of the expected net proceed to the firm and the selling shareholders. The relevant considerations are:

  • The firm plans to raise $200M
  • The selling shareholders plan to raise $100M
  • The greenshoe option is on 15% of the total number of offered shares (firm plus selling shareholders).

 

The Total Net Proceeds from the IPO will therefore be $345M:

  

Total Net Proceeds = (Net Proceeds to Firm + Net Proceeds to Selling Shareholders) × (1 + Greenshoe) = (200 + 100) × 1.15 = 345.

  

Of this amount: 

  • Net Proceeds to Selling Shareholders = $100M
      
  • Net Proceeds to Firm = $245M
    • Net Proceeds from Original Offering = $200M
    • Net Proceeds from Greenshoe Option (15% of total offering size) = $45M

   

The following table summarizes the Net Proceeds collected by the selling shareholders and the firm:

 

Net Proceeds ($M) % of Total Net Proceeds
Net Proceeds to Selling Shareholders 100 28.99%
Net Proceeds to Firm from Original Offer 200 57.97%
Net Proceeds to Firm from Greenshoe 45 13.04%
Total Net Proceeds to Firm 245 71.01%
Total Net Proceeds 345 100.00%

 

B: Post-IPO Equity Valuation

With this information, we can now also compute the expected Post-IPO Value of the Firm's Equity. Given a pre-IPO valuation of $500M, direct costs of $5M, and expected net proceeds to the firm of $245M, the expected post-IPO equity value is $740M:

 

Post-IPO Equity Value = Pre-IPO Equity Value - Direct Costs + Net Proceeds to Firm = 500 - 5 + 245 = 740.