When preparing for an IPO valuation, what is the first step?

The first step in preparing for an IPO valuation is to identify and choose public company comparables. This process involves selecting companies that are similar in terms of industry, size, growth potential, and other relevant factors. By identifying these comparables, analysts can extract valuation multiples and other financial metrics that are reflective of market conditions and investor sentiment. This comparative analysis serves as a benchmark, allowing the company to understand where it stands in relation to its peers and helps inform its own valuation prior to the IPO.

Understanding the market landscape and identifying similar companies provides critical context that is necessary before undertaking more specific calculations, such as estimating expected future cash flows or assessing past performances. This step lays the groundwork for a more thorough valuation analysis, ensuring that the company’s own financial metrics are evaluated against the right standards.