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I would like to determine (roughly) the value of an individual share of common stock based on S-1 (Pre-IPO) filing for a private corp that was acquired instead of going public. The company sale price is known (Cash buyout), but there are a lot of fairly complicated details in the S1 (Options, Warrants, Preferred Convertible Options, Debt, etc...) that make it hard to determine what the per stock breakdown will be.

It seems that with this information public it should be possible to connect the dots and determine what the valuation per share would be, however it seems to have not been done (or posted anywhere). Where can I go to find this information, or is there a particular professional I should seek out to have it done?

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The value of a share depends on the value of the company, which involves a lot more than the value of its assets -- it requires making decisions about what you think will happen to the company in the future. That's inherently not something that can be reduced to a single formula, at least not unless you can figure out how to represent your guesses and your confidence in them in the formula ... and even if you could do all that it would only say what you think the stock is worth; others will be using different numbers and legitimately get different results.

Disagreement over value is what the stock market is all about, I'm afraid.

  • Assume the value is known. In this case a company that was planning IPO and filing S1's instead got bought by another company for cash. Is there enough info there to get an idea of the end stock value? – BadPirate Sep 10 '15 at 4:29
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    @keshlam is making the point that the value is subjective and essentially always wrong because of assumptions about the future of the company. The other company buying that company is also making assumptions about value, calculating future value and more importantly about how it would integrate into their current business (i.e. where management and processes can be streamlined by merging) therefore the value of the company at the moment of takeover is still unknown. That is even true of firms who are publicly traded! – MD-Tech Sep 10 '15 at 8:34
  • @MD-Tech I'm not looking for company value, but what the share price will be at time of sale. If I know the purchase price, can I determine share price from the stock info in the S-1? – BadPirate Sep 11 '15 at 2:33
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    No. Sorry. It will be worth what people think it is worth, and that includes factors not on the forms. – keshlam Sep 11 '15 at 2:38
  • @BadPirate the share price is inexorably linked to the value – MD-Tech Sep 11 '15 at 7:58
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To add to @keshlam's answer slightly a stock's price is made up of several components:

  • total assets - total liabilities (the book value)
  • the net present value (NPV) of all future cashflows (adjusted by risk)
  • a risk premium

the only one of these that is known even remotely accurately at any time is the book value on the day that the accounts are prepared. Even completed cashflows after the books have been prepared contain some slight unknowns as they may be reversed if stock is returned, for example, or reduced by unforeseen costs.

Future cashflows are based on (amongst other things) how many sales you expect to make in the future for all time. Exercise for the reader: how many iPhone 22s will apple sell in 2029? Even known future cashflows have some risk attached to them; customers may not pay for goods, a supplier may go into liquidation and so need to change its invoicing strategy etc.. Estimating the risk on future cashflows is highly subjective and depends greatly on what the analyst expects the exact economic state of the world will be in the future.

Investors have the choice of investing in a risk free instrument (this is usually taken as being modelled by the 10 year US treasury bond) that is guaranteed to give them a return. To invest in anything riskier than the risk free instrument they must be paid a premium over the risk free return that they would get from that. The risk premium is related to how likely they think it is that they will not receive a return higher than that rate. Calculation of that premium is highly subjective; if I know the management of the company well I will be inclined to think that the investment is far less risky (or perhaps riskier...) than someone who does not, for example.

Since none of the factors that go into a share price are accurately measurable and many are subjective there is no "right" share price at any time, let alone at time of IPO. Each investor will estimate these values differently and so value the shares differently and their trading, based on their ever changing estimates, will move the share price to an indeterminable level.

In comments to @keshlam's answer you ask if there is enough information to work out the share price if a company buys out the company before IPO. Dividing the price that this other company paid by the relative ownership structure of the firm would give you an idea of what that company thought that the company was worth at that moment in time and can be used as a surrogate for market price but it will not and cannot accurately represent the market price as other investors will value the firm differently by estimating the criteria above differently and so will move the share price based on their valuation.

  • Seems my question still wasn't clear enough, sorry about the language. I'm not looking at determining the company value, in this case it's known, a cash buyout for a known value. I'm trying to understand if it's possible to determine individual share value in the event of a cash buyout of the company using the stock info provided in the S1 -- is there a way I can clarify the question? – BadPirate Sep 11 '15 at 13:40
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    The company value is not known, let's be clear about that. The company value to the buyer is all that you know. Are you trying to ask what the value of a share in a private company that is bought out is worth? If so, since the shares don't exist the answer is 0. If you mean How much money do the directors, who have shared equity in the firm get I can answer that. – MD-Tech Sep 11 '15 at 13:48
  • The value of the company's physical assets and current cash flow is known. The value of the company's intellectual assets, reputation, market position, etc., is not known and is a huge factor in its valuation. I'm sorry, @badpirate, but you really are starting with an incorrect set of assumptions and you're going to have to accept that. Either you need to invest the real effort required and do deep research, or you have to accept that you don't have enough information and decide whether you want to risk it anyway , or bypass the question and diversify with mutual finds. – keshlam Sep 11 '15 at 14:11
  • I'm an employee with options. The final stock price based on the company sale price is important because it will let me know how much (if anything) I will be getting out of the sale. – BadPirate Sep 11 '15 at 14:15
  • just divide the amount of the sale value by the number of outstanding shares. If they bought the whole company then they bought its debts etc too so you don't need to account for liabilities. That, less a few possible costs, is the share price that you should receive. It will only be indicative though as it depends on where the particular class of shares falls in the order of payments. – MD-Tech Sep 11 '15 at 14:19

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