IPO valuation methods centre on trading comparables: the company is priced against how similar listed companies trade, and a discounted cash flow (DCF) cross-checks the result. Precedent transactions inform the range but carry control premiums. The final price is set during bookbuilding.
The methods are international and apply wherever a company lists. This article takes a UK lens, the London Stock Exchange's AIM and Main Market, and follows a fictional software company to show how a single accounting choice can move a valuation range by tens of millions of pounds.
An initial public offering (IPO) price is not chosen in a single step. It narrows in stages, from the company's own analysis to a figure agreed with the investors who will buy the shares. For the preparation that comes before these stages, see our IPO readiness checklist.
The company and its broker or bookrunners build a valuation from trading comparables, a DCF and other cross-checks, using the forecast that supports the equity story.
The valuation is turned into a price range per share for the offer.
During bookbuilding, institutional investors give indications of the shares they would take and the price they would pay.
At pricing, the company and its advisers agree the final price, informed by the indications in the book.
IPOs are commonly priced at a discount to the valuation range's estimate of fair value. The discount is there to attract investors and to support trading after listing. We do not put a figure on it here, because it is set deal by deal.
If you are weighing a traditional IPO against other routes to a listing, our answer on direct listing vs IPO sets out the differences.
Four methods appear in most IPO valuations. They answer different questions, so they carry different weight in the range.
| Method | What it measures | Role in an IPO | Limits |
|---|---|---|---|
| Trading comparables | How similar listed companies trade, as multiples of revenue, EBITDA or earnings | Usually the main reference | Only as good as the peer set and the comparability of its accounts |
| Discounted cash flow (DCF) | Intrinsic value from the company's own forecast cash flows | Cross-check on the multiples; makes the forecast's assumptions explicit | Sensitive to the forecast and the discount rate |
| Precedent transactions | Prices paid to acquire similar companies | Cross-check, and a reference in a dual-track process | Prices paid for control usually include a control premium |
| Sum-of-the-parts | Each distinct business valued separately, then added together | Used for groups with distinct businesses | Needs separate figures and peers for each part |
IPO investors buy minority stakes in a company that is about to be listed, so they compare the price with how similar listed companies already trade. Trading comparables, also called the guideline public company method or comparable company analysis, apply peers' multiples to the company's own figures. That is why they are usually the main reference for an IPO.
The common multiples are EV/revenue, EV/EBITDA and P/E. The first two divide enterprise value (EV) by revenue or EBITDA; P/E divides the share price by earnings per share. A multiple transfers only when the peer is genuinely comparable, in its business and in the way its accounts are drawn up.
A discounted cash flow (DCF) values the company on its own forecast cash flows, discounted to today at a rate that reflects risk. It gives an intrinsic value that cross-checks the multiples. Its main use in an IPO is discipline: it makes the forecast's assumptions explicit, so the board can see which growth and margin assumptions a given value depends on. A DCF far outside the comparables range is a prompt to question the forecast, the peer set or both.
Precedent transaction analysis looks at prices paid in acquisitions of similar companies. Those buyers paid for control, so the prices usually include a control premium. IPO investors buy minority stakes, so precedents are a cross-check for an IPO rather than the anchor. They matter more in a dual-track process, where the company prepares for an IPO and a sale at the same time; our comparison of business exit strategies covers that choice.
A group with distinct businesses may be valued as the sum of its parts, with each business valued on its own peers and the results added together.
Trading comparables usually anchor an IPO valuation, because IPO investors buy minority stakes and compare the price with listed peers. A DCF tests the forecast behind the range. Precedent transactions include control premiums, so they are a cross-check, not the basis of the range.
EV/EBITDA comparables and a DCF both produce enterprise value: the value of the business before deducting what is owed to lenders. Shareholders own what is left, so equity value is enterprise value less net debt, plus any other adjustments the advisers identify. The price per share then follows from equity value and the number of shares in issue after the offer.
| Step | What happens |
|---|---|
| 1. Enterprise value | From trading comparables, cross-checked with the DCF |
| 2. Less net debt | Borrowings less cash |
| 3. Plus or minus adjustments | Other items the advisers identify |
| 4. Equity value | The value attributable to shareholders |
| 5. Divide by shares in issue after the offer | Including any new shares issued for primary proceeds |
| 6. Price per share | The basis for the price range |
Primary shares are new shares the company issues in the offer, so the proceeds go to the company and the share count rises. Secondary shares are existing shares sold by current shareholders, so the proceeds go to the sellers and the share count does not change.
A multiple compares like with like only if the figures on both sides are drawn up the same way. For software and other companies built on intangible assets, development spend is a common source of difference, because two companies can account for the same spend in different ways.
The result is that a company expensing development under FRS 102 reports lower EBITDA than an IFRS peer that capitalises the same spend. Applied to that lower EBITDA, the peers' multiple understates the company's value relative to them. Analysts may adjust for this by adding back the expensed development that would have met the IAS 38 criteria, to put the company on the peers' basis.
Whether they accept the adjustment depends on evidence that the costs met the IAS 38 criteria: dated assessments, project records and costs tracked by project at the time. Our article on IFRS 1 and development costs explains why evidence created later does not count.
An adjustment to EBITDA without evidence will not survive due diligence. If the records showing that development met the IAS 38 criteria were not made at the time, expect the valuation to rest on reported EBITDA.
The framework choice matters for UK listing candidates. Since August 2026, AIM allows UK-incorporated companies to report under IFRS or FRS 102, while the Main Market requires IFRS, so a company listing on AIM under FRS 102 may be compared with peers that report under IFRS. See FRS 102 for AIM companies for what the change means for intangibles, and FRS 102 vs IFRS for the full comparison.
Northgate is a fictional UK software company preparing a Main Market IPO. It reports under FRS 102 and expenses its development spend. The figures are illustrative and round.
| Input | Figure | Note |
|---|---|---|
| Reported EBITDA | £10m | FRS 102, development expensed |
| Development expensed each year | £2m | Meets the IAS 38 criteria, with evidence from the time |
| Peer EV/EBITDA | 12–15x | IFRS reporters that capitalise such costs |
| DCF enterprise value | £160m | Cross-check |
| Precedent transactions | £190m | Includes control premiums; cross-check only |
| Net debt | £10m | Deducted to reach equity value |
| Basis | EBITDA | Enterprise value at 12x | Enterprise value at 15x |
|---|---|---|---|
| Reported | £10m | £120m | £150m |
| Like-for-like | £12m | £144m | £180m |
| Difference | £2m | £24m | £30m |
On reported EBITDA, the peers' multiples give an enterprise value of £120m to £150m. Like-for-like EBITDA adds back the £2m that the peers would capitalise, giving £12m and an enterprise value of £144m to £180m. The analyst accepts the add-back because Northgate can show that the costs met the criteria at the time.
The cross-checks support the adjusted range. The DCF, at £160m, sits inside the like-for-like range and above the reported one. Precedent transactions, at £190m, sit above both, as expected for prices that include control premiums. Because the Main Market requires IFRS, the same records will matter again when Northgate moves to IFRS.
| Item | Low | High |
|---|---|---|
| Enterprise value | £144m | £180m |
| Less net debt | (£10m) | (£10m) |
| Equity value | £134m | £170m |
The price per share would follow by dividing equity value by the shares in issue after the offer, including any new shares issued for primary proceeds.
Northgate's comparables range moves by £24m at the low end and £30m at the high end because of one accounting choice: expensing £2m of development that its IFRS peers would capitalise. The like-for-like range of £144m to £180m survives scrutiny only because Northgate holds contemporaneous evidence that the costs met the IAS 38 criteria. Without it, the range falls back to £120m to £150m.
The broker will build its own valuation. A board that has already built one can test the broker's assumptions rather than react to them. The usual format is a football field: one bar per method, so the board sees a defensible valuation range, not one number, and the reasons each bar sits where it does.
| Method | Low | High | Role |
|---|---|---|---|
| Trading comparables, reported EBITDA | £120m | £150m | Main reference, before adjustment |
| Trading comparables, like-for-like EBITDA | £144m | £180m | Main reference, adjusted with evidence |
| DCF | £160m | £160m | Cross-check (point estimate) |
| Precedent transactions | £190m | £190m | Control premium, cross-check |
The range rests on the forecast, and the forecast rests on intangible assets. A value bridge connects each driver in the forecast, such as growth, margin and retention, to the intangible asset that produces it. The equity story follows the same order, and our public listing playbook sets out how to build it.
The same discipline applies before any exit, not only a listing. For the private-company view of the same methods, see our guide to how to value a business.
The company valuation workspace in Opagio Intangibles builds trading comparables, precedent transactions and DCF views into one football-field range, with saved scenarios and saved peer sets. You enter the comparables yourself; there is no market-data feed. Some DCF views depend on your plan.
The Value Drivers Register links each intangible asset to its evidence, so the records behind an adjustment such as Northgate's are in one place when an analyst or reporting accountant asks for them. For the wider exit picture, see Opagio for exit readiness.
Your broker and advisers set the IPO price. Opagio supports the analysis behind the range; it does not set or recommend a price.
See trading comparables, precedent transactions and a DCF side by side in one football-field range, with each intangible asset linked to its evidence. Book a demo of Opagio Intangibles.
Mainly trading comparables: the company is valued against how similar listed companies trade, usually on EV/revenue, EV/EBITDA or P/E. A DCF cross-checks the result and makes the forecast's assumptions explicit.
Precedent transactions reflect prices paid for control, so they usually include a control premium. IPO investors buy minority stakes, so precedents serve as a cross-check rather than the anchor. They carry more weight in a dual-track process.
Yes, through the comparability of EBITDA and other metrics. A company that expenses development under FRS 102 reports lower EBITDA than an IFRS peer that capitalises the same spend. Since August 2026, AIM allows UK-incorporated companies to report under IFRS or FRS 102; the Main Market requires IFRS.
Tony Hillier is Chairman of Opagio. He specialises in valuation, due diligence, accounting and structured finance, and previously worked at NM Rothschild and GEC Finance. Learn more about our team.
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