How to Calculate IPO Deal Size, Greenshoe and Free Float in an Interview

To size an IPO in an interview you need five calculations, in this order: oversubscription from the order book, base offer size split into primary and secondary proceeds, the greenshoe as 15% of the base offering, net proceeds after the gross spread and transaction costs, and finally the post-IPO share count that gives you market capitalisation and free float. None of the arithmetic is hard. What trips candidates up is keeping straight which shares are new, which proceeds reach the company, and which shares are actually free to trade.

This walkthrough runs one deal all the way through with numbers you can reuse. It is the applied companion to the conceptual overview of the IPO process stage by stage, and it mirrors the practice case The IPO Process A-Z, so you can attempt the figures yourself before reading the answers.

The setup: one worked IPO

Helvetia Robotics AG, a family-owned German industrial automation group, is listing on the Frankfurt Prime Standard. These are the terms.

One structural assumption matters throughout: the greenshoe shares are lent to the syndicate by the founding family, so exercising the over-allotment option places existing shares rather than creating new ones. That single detail decides whether the post-IPO share count moves, and interviewers use it deliberately.

Step 1: Oversubscription and what it really tells you

The base offering is everything placed before any over-allotment:

Base Offering = 10.0m primary + 5.0m secondary = 15.0m shares

Oversubscription = 120.0m / 15.0m = 8.0x

Pro-Rata Allocation Ratio = 15.0m / 120.0m = 12.5%

Oversubscription is the number the syndicate watches minute by minute during bookbuilding, because it tells them whether the offer price can be pushed toward the top of the range and how much natural buying support the stock will have once it lists. A book covered eight times at €24.00 is deep enough that the bookrunners can allocate selectively.

Say that out loud in an interview, because the 12.5% pro-rata figure is a benchmark, not a promise. Real allocation is discretionary: long-only institutions expected to hold get favoured over hedge funds expected to flip on day one, and cornerstone investors who committed before the roadshow get what they were promised. Treating an eight-times-covered book as though every investor receives 12.5% of their order is a common and avoidable error.

Step 2: Base offer size and the primary/secondary split

Base Offer Size = 15.0m × €24.00 = €360.0m

Primary Gross Proceeds = 10.0m × €24.00 = €240.0m (to the company)

Secondary Gross Proceeds = 5.0m × €24.00 = €120.0m (to the founding family)

The split is the first thing a fund manager checks in a prospectus. Only primary proceeds reach the balance sheet and fund growth, deleveraging or acquisitions; secondary proceeds transfer wealth to the selling shareholders and change nothing about the business. A deal that is overwhelmingly secondary invites an obvious question about why the owners are selling now, which is why bankers push for a visible primary component even when the company has no pressing need for cash.

Note also what the primary tranche does to the existing holders: 10.0m new shares against 40.0m pre-existing ones dilutes the family by 20%. The same dilution arithmetic underpins Dilution Deep Dive, and the treasury stock method used for options and convertibles is set out in the article on calculating diluted share count.

Step 3: Sizing the greenshoe

Greenshoe Shares = 15.0% × 15.0m = 2.25m shares

Greenshoe Value = 2.25m × €24.00 = €54.0m

Total Deal Size (full exercise) = €360.0m + €54.0m = €414.0m, or 17.25m shares

What the over-allotment option actually is

The greenshoe, formally the over-allotment option, lets the syndicate place up to 15% more shares than the base offering and then decide, within roughly 30 calendar days of listing, whether to buy those shares from the selling shareholder at the offer price or to buy them back in the open market.

The key insight, and the one that separates a good answer from a memorised one, is that the syndicate is short 2.25m shares from the moment of allocation. It sold 17.25m shares but only 15.0m existed in the base offering. That short position is not an accident; it is the tool that makes price support possible.

Why 15%

Fifteen percent is the market convention in Europe and the US alike, large enough to give the stabilisation manager meaningful firepower and small enough that it does not materially change the deal's economics. A deal launched without a greenshoe is unusual, and noticing its absence is the sort of observation that makes an interviewer sit up.

Step 4: Stabilisation maths when the stock breaks issue

Now assume the shares slip below the €24.00 offer price in the first weeks of trading and the stabilisation manager closes the short by buying in the market at an average of €22.80.

Buy-Back Cost = 2.25m × €22.80 = €51.3m

Proceeds Held from Over-Allotment = 2.25m × €24.00 = €54.0m

Stabilisation Result = 2.25m × (€24.00 − €22.80) = €2.7m

Total Deal Size in this scenario = €360.0m, because the greenshoe lapses unexercised.

Who keeps the €2.7m

This is the single most misunderstood point in equity capital markets interviews. The €2.7m is not a trading profit the banks pocket. The buying is done on behalf of the offering, it is disclosed to the market, and the economics flow to the issuer or the selling shareholder under the terms of the underwriting agreement. What the syndicate gets out of stabilisation is a credible defence of the offer price during the fragile first weeks — and therefore its reputation with the institutions it will need for the next deal.

There is also an asymmetry worth stating: the greenshoe is only ever exercised when the stock trades above the offer price. A fully exercised shoe means the deal went well; a lapsed shoe means it did not. The two outcomes tell you opposite things.

Step 5: From gross proceeds to net proceeds

Assume from here that the greenshoe is exercised in full, and that all 2.25m over-allotment shares come from the founding family. The secondary tranche grows; the primary tranche does not.

Underwriting Commission on Primary = 4.0% × €240.0m = €9.6m

Net Primary Proceeds = €240.0m − €9.6m − €6.0m = €224.4m

Secondary Gross Proceeds (with shoe) = (5.0m + 2.25m) × €24.00 = €174.0m

Underwriting Commission on Secondary = 4.0% × €174.0m = €6.96m

Net Secondary Proceeds = €174.0m − €6.96m = €167.0m

Reading the cost of going public

All-in transaction costs are €22.56m, or 5.4% of the €414.0m raised. The company alone gives up 6.5% of its gross primary proceeds, because the €6.0m of legal, audit, listing and marketing costs sits with the issuer rather than being shared with the selling shareholder.

Two details are worth knowing. First, the gross spread is quoted on gross proceeds, never on net — a candidate who nets first and applies the fee second will be off by a visible margin. Second, European spreads of 3% to 4% are meaningfully lower than the roughly 7% that has long been standard for mid-cap US IPOs, a gap that reflects differences in syndicate structure and in how retail distribution is compensated.

Step 6: Post-IPO share count, market cap and free float

Only the 10.0m primary shares are newly created. The secondary and greenshoe shares already existed and simply changed hands.

Shares Outstanding After IPO = 40.0m + 10.0m = 50.0m shares

Market Capitalisation = 50.0m × €24.00 = €1,200.0m

Free Float (base offering only) = 15.0m / 50.0m = 30.0%

Free Float (greenshoe exercised in full) = 17.25m / 50.0m = 34.5%

The trap here is obvious once stated: if you assume the greenshoe creates new shares, you get 52.25m shares and a market capitalisation of €1,254.0m, and every per-share metric downstream is wrong. Read the structure before you calculate.

Why free float drives more than liquidity

Free float is the proportion of the share count genuinely available to trade. It matters for two reasons. Major index providers, including those behind the German MDAX and SDAX, apply free-float thresholds for eligibility and weight constituents by free-float market capitalisation rather than full market capitalisation, so moving from 30.0% to 34.5% can decide whether index funds become forced buyers of the stock. And a thin float widens the bid-ask spread, making it harder for large institutions to build a position and often attracting a liquidity discount in valuation. This is why bankers push issuers toward a float of at least 25% to 30% at listing.

The €1,200.0m market capitalisation is also the starting point for the bridge to enterprise value, which shifts on listing day because the €224.4m of net primary proceeds reduces net debt. If that bridge is not automatic for you, work through the full EV-to-equity bridge and the article on enterprise value versus equity value.

Step 7: The lock-up overhang

Locked-Up Shares = 50.0m − 17.25m = 32.75m shares

Share of the Register Locked Up = 32.75m / 50.0m = 65.5%

Overhang Value = 32.75m × €24.00 = €786.0m

The lock-up period is a contractual promise by the company, the pre-IPO owners and management not to sell for a defined window — 180 days is the European and US standard. Its purpose is to stop the market being flooded immediately after listing and to signal that insiders remain aligned with new investors.

The flip side is the overhang: €786.0m of stock, more than double the entire base offering, becomes sellable on one known and publicly disclosed date. Traders position for it, which is why share prices frequently soften into a lock-up expiry even when nothing about the business has changed. Companies that manage the date well either secure a public commitment from the major holders not to sell, or arrange a coordinated secondary placing at a modest discount that clears the stock in a single controlled transaction.

All outputs in one place

Five mistakes that cost candidates the answer

Treating the greenshoe as new shares. An over-allotment sourced from existing shareholders raises the free float but leaves the share count, and therefore market capitalisation, untouched.

Giving the stabilisation gain to the banks. The buying is done for the offering; the economics flow to the issuer or the selling shareholder under the underwriting agreement.

Mixing primary and secondary proceeds. Only the primary tranche reaches the balance sheet, and in this structure the €6.0m of other transaction costs sits with the company alone.

Quoting free float against shares offered instead of shares outstanding. That flatters the number badly — 17.25m over 17.25m is not a float — and misstates index eligibility.

Applying the gross spread to net rather than gross proceeds. The fee is always quoted on gross, and the difference is visible in the answer.

Two variants interviewers use to push you

Variant one: the greenshoe is primary instead of secondary

Suppose the 2.25m over-allotment shares are newly issued by the company rather than lent by the family. Three things change at once.

Shares Outstanding After IPO = 40.0m + 10.0m + 2.25m = 52.25m shares

Market Capitalisation = 52.25m × €24.00 = €1,254.0m

Primary Gross Proceeds = 12.25m × €24.00 = €294.0m, so Net Primary Proceeds = €294.0m − (4.0% × €294.0m) − €6.0m = €276.2m

The family receives only the €120.0m secondary tranche and is diluted further, from 20% dilution to roughly 23.4%. Free float rises to 17.25m / 52.25m = 33.0% — lower than the 34.5% in the secondary structure, because the denominator grew too. In practice a primary greenshoe is less common precisely because it leaves the final share count uncertain for 30 days after listing, which makes every per-share metric provisional.

Variant two: the deal prices at the top of the range

At €26.00 instead of €24.00, the base offer size becomes 15.0m × €26.00 = €390.0m and market capitalisation becomes 50.0m × €26.00 = €1,300.0m. The tempting conclusion is that the company should always price at the top. The better answer is that the syndicate is optimising the durability of the register, not the price on day one: an aggressive price thins the book to the least price-sensitive buyers, raises the risk that the stock breaks issue, and damages the issuer's ability to come back for a follow-on. It also strips out the cushion the greenshoe needs to function as a stabilisation tool. Deliberate underpricing of roughly 10% to 15% is a feature of the process rather than a failure of nerve, a point developed in the stage-by-stage process guide.

How to sanity-check the offer price itself

A natural follow-up is where €24.00 came from in the first place. The honest answer is peer trading multiples with an IPO discount applied, typically 10% to 15%, because the investors being asked to buy already own the listed comparables and will price the new name relative to what they hold. A discounted cash flow serves as an independent cross-check; precedent transactions are the weakest reference for an IPO because they embed a control premium that a minority investor does not pay.

The reasoning behind that hierarchy is worked through in Three Valuation Methods, the mechanics of applying peer multiples in Comparable Company Analysis, and the vocabulary in what a valuation multiple actually means.

Practise the full sequence

Reading the calculations is not the same as producing them under pressure. Work through The IPO Process A-Z from the given data without looking at the model answer, then compare. If you want the surrounding context first — who does what, in what order, and why the price range exists at all — start with the stage-by-stage IPO process guide, and see Dual-Track Process: IPO vs. M&A for how a seller chooses between listing and selling in the first place.