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Since it goes public for the first time, there's no market price available to be considered for offers.

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  • "... there's no market price available to be considered for offers" There are many ways to value a company. One simple way is to use the comparables method, which values a company by considering the value of other similar public companies. – Flux Oct 31 '20 at 13:44
  • Ethan, there is a "market", it's just a "private, discussed market" - just like (say) selling a house. The company / underwriter asks around and sees what they can get. – Fattie Oct 31 '20 at 14:26
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No, the price is set by the company but crucially is agreed with the underwriter, who undertakes to buy any shares that don’t sell in the market. It’s almost always a premium to the company’s asset value, or there would be no point in the IPO. But it’s generally below the anticipated market price, to give a first-day profit to the IPO investors and reduce the risk to the underwriter.

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  • Then could you tell me what's book value per share or paid-in- capital used for? Since everything trades at the market price whether merger & acquisition or share buybacks. – Ethan Allberton Oct 31 '20 at 13:41
  • Book value per share is just a guess. It usually includes things like "well, the Brand Name is surely worth 18 billion". How much are "brand names" worth? Who knows - your guess is as good as mine. – Fattie Oct 31 '20 at 14:27
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There are two components involved in determining an IPO's price.

First, the investment bank determines the value of the company.

Next, the company does an IPO Roadshow and is often called a Dog & Pony Show. It lasts for a couple of weeks as the company pitches the IPO to institutional investors (hedge funds, analysts, fund managers, banks). The higher the interest in the IPO, the higher its per share price it will be.

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