Suppose a private firm(sole proprietor) has assets worth 50crs(zero Liability). Now I want expand my company by taking it public. I reach out to an investment Bank. Will the investment bank evaluate the worth of my company more than or less than 50 crs. And what will be the owner’s share in the resulting public company?(It was 100% earlier)Am I missing something?Could anyone please explain this concept with an example?Thanks

  • i have to say theoretical knowledge may vary with industry practices. I suggest you look up Enterprise value, ebitda multiples and IPO structures. Hope it helps – MH.Q Aug 2 '17 at 16:54
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    I'm not sure if in the history of marketable securities there has been a case where an IPO company was previously 100% owned by a single person/entity. – quid Aug 2 '17 at 16:56
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    I'm voting to close this question as off-topic because this is not about personal finance – Nathan L Aug 2 '17 at 17:45

Will the investment bank evaluate the worth of my company more than or less than 50 crs.

Assuming the salvage value of the assets of 50 crs (meaning that's what you could sell them for to someone else), that would be the minimum value of your company (less any outstanding debts).

There are many ways to calculate the "value" of a company, but the most common one is to look at the future potential for generating cash.

The underwriters will look at what your current cash flow projections are, and what they will be when you invest the proceeds from the public offering back into the company. That will then be used to determine the total value of the company, and in turn the value of the portion that you are taking public.

And what will be the owner’s share in the resulting public company?

That's completely up to you. You're essentially selling a part of the company in order to bring cash in, presumably to invest in assets that will generate more cash in the future. If you want to keep complete control of the company, then you'll want to sell less than 50% of the company, otherwise you can sell as much or as little as you want.


They're not going to look very hard at the asset value (except for actual cash in the bank), which doesn't bear much relationship to the real value of the company. More likely they will look at the last three years' earnings and choose a target P/E ratio based on that.

The owner's share depends entirely on how much of the business they choose to sell. If the business is worth $60M and they want to raise $20M for themselves, then that means selling 33% of the company. If they want to raise $20M for the business as well, then that means selling half the company and retaining ownership of the other half, which is now worth $80M because of the cash infusion. But many stock exchanges will have minimum requirements for the percentage of the shares that are trading freely, so they will have to sell at least that much.

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    Asset value sets a minimum for the value of a company. If a company has no cash but a factory that can be sold for $1M then the company is worth at least $1M since someone could pay $1M for the company and turn around and sell the assets. – D Stanley Aug 2 '17 at 15:57
  • @DStanley Of course it's true that a company which adds little value to its assets will be valued based on its assets. But such a company is unlikely to be floated, so that's not very relevant here. – Mike Scott Aug 2 '17 at 16:12
  • @DStanley Suppose you own 60 shares. You're raising $20M for you and $20M for the company. So you issue 20 new shares, initially held in the company treasury, and the company is now worth $80M. When you float you sell those 20 and 20 of yours, so you achieve your goals and now own 40 out of 80 shares, or half the company. – Mike Scott Aug 2 '17 at 16:15
  • @DStanley it's not diluted while the company holds them, because they increase its liquid assets. You can't just issue new shares to yourself without dilution, of course, but that's not what you're doing. – Mike Scott Aug 2 '17 at 16:20
  • I've deleted my comments re: company value as I see where my logic flaw was. – D Stanley Aug 2 '17 at 16:42

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