IPO Pricing and Stabilization

Step 1: Bookbuilding Coverage Ratio

Coverage Ratio = Demand at Price Level / Base Offering Shares

Using the base offering of 20.0m shares, each price level in the book converts into a coverage ratio:

The coverage ratio (also called the subscription ratio) tells the bookrunners how many times over the deal could be filled if they priced at that level. Demand falls as price rises because each investor submits a limit order stating the maximum price it will pay, so the book is really a demand curve rather than a single number. Note that coverage is always measured against the base offering, not against the base plus greenshoe — the greenshoe is an allocation tool that only becomes relevant after pricing.

Step 2: Final Offer Price

Final Offer Price = highest price in the range at which Coverage Ratio ≥ 3.0x

Working down the range from the top: €26.00 is 1.6x covered and €25.00 is 2.4x covered, so both fail the 3.0x test. €24.00 is 3.3x covered and clears it.

Final Offer Price = €24.00

The obvious question is why the bookrunners do not simply price at €25.00, where the book is still oversubscribed at 2.4x and the issuer would raise more. The answer is that a book that is only just covered leaves no aftermarket support: every investor who wanted shares got them, so there is nobody left to buy on day one, and any investor who flips creates immediate selling pressure with no natural bid behind it. Pricing one increment below the clearing level is what produces the modest first-day gain that IPO investors expect in return for committing capital to an untested listing. Bookrunners also look past the headline coverage number at the quality of the book — how much of the demand comes from long-only anchor investors who will hold, versus hedge funds likely to sell into the first rally.

Step 3: Greenshoe Size and Total Offering Size

Greenshoe Shares = Base Offering Shares × Greenshoe Percentage

Greenshoe Shares = 20.0m × 15% (0.15) = 3.0m shares

Total Offering Shares = 20.0m + 3.0m = 23.0m shares

The greenshoe, formally the over-allotment option, gives the syndicate the right — but not the obligation — to place up to 15% more stock than the base deal at the same offer price. It is the market-standard size in both Europe and the US, and it exists so that the stabilisation agent can sell more shares than it is contractually obliged to deliver and then decide, once trading has started, how to close the resulting short position. Here the greenshoe is carved out of the selling shareholders' holdings rather than newly issued stock, which matters for the share count in Step 5.

Step 4: Gross and Net Proceeds

Gross Proceeds = Total Offering Shares × Final Offer Price

Gross Proceeds = 23.0m × €24.00 = €552.0m

Underwriting Fee = €552.0m × 3.5% (0.035) = €19.32m

Net Proceeds = €552.0m - €19.32m = €532.68m

Those proceeds do not all go to the same place. Splitting the 23.0m shares into the 15.0m primary shares issued by the company and the 8.0m secondary shares sold by existing holders (5.0m in the base deal plus the 3.0m greenshoe):

Only the primary proceeds reach the company's balance sheet, where they either fund growth or repay debt; the secondary proceeds are simply a cash-out for the existing owners and change nothing about the business. This is the single most useful distinction in an ECM interview, because it drives the enterprise value bridge: €347.4m of net primary proceeds used to repay borrowings reduces net debt by the same amount, whereas secondary proceeds leave enterprise value untouched. Investors also read the primary/secondary mix as a signal — a deal that is overwhelmingly secondary invites the question of why the owners are selling.

Step 5: Post-IPO Market Capitalisation and Free Float

Shares Outstanding Post-IPO = Pre-IPO Shares + Primary Shares Issued

Shares Outstanding Post-IPO = 80.0m + 15.0m = 95.0m shares

Market Capitalisation = 95.0m × €24.00 = €2,280.0m

Free Float % = 23.0m / 95.0m = 24.2%

Note that the 3.0m greenshoe shares do not increase the share count: they are existing shares changing hands, so they move stock from insiders into the float without diluting anyone. Free float is the fraction of the share count genuinely available to trade, and it matters far beyond cosmetics — index providers apply free-float thresholds and free-float weighting, so a low float can keep a company out of the index funds that provide a permanent bid, while also producing thinner liquidity and a wider bid-ask spread. If the greenshoe is not exercised, the float drops to 20.0m / 95.0m = 21.1%, which is why issuers targeting index inclusion push for a larger base deal rather than relying on the shoe.

Step 6: Stabilisation Outcome in the Aftermarket

The mechanic starts at allocation. The syndicate allots the full 23.0m shares to investors and collects 23.0m × €24.00 = €552.0m, but at closing the issuer and the selling shareholders deliver only the 20.0m base shares. The syndicate is therefore short 3.0m shares, and it holds €72.0m of cash against that short. Everything that follows is simply the question of how it closes the position.

Upside scenario — the stock trades at €27.00. Buying 3.0m shares in the market would cost 3.0m × €27.00 = €81.0m, against the €72.0m received. Instead the syndicate exercises the greenshoe and buys the shares from the selling shareholders at the offer price:

Cost to cover via greenshoe = 3.0m × €24.00 = €72.0m, exactly offsetting the cash held, and the selling shareholders receive an additional €72.0m in gross proceeds. No stabilisation purchases occur at all.

Downside scenario — the syndicate covers at an average of €22.50. Here the cheaper route is the open market, and those purchases are the stabilisation itself: a standing bid at or below the offer price that absorbs flowback from investors selling out of the deal.

Stabilisation Result = Greenshoe Shares × (Final Offer Price - Average Market Purchase Price)

Stabilisation Result = 3.0m × (€24.00 - €22.50) = €4.5m

Cash check: the syndicate paid 3.0m × €22.50 = €67.5m to cover a short for which it had received €72.0m, leaving €4.5m to be settled under the underwriting agreement. The greenshoe then lapses unexercised, the selling shareholders keep their 3.0m shares, and the offering ends at 20.0m shares.

The reason this structure is used rather than the bank simply buying stock with its own money is that stabilisation purchases are self-funding — they close a short the syndicate deliberately created, so the price support costs nothing to put in place. Buying your own new issue would otherwise look like market manipulation, and it is only permitted because EU Market Abuse Regulation and equivalent US rules create an explicit safe harbour: stabilisation must be disclosed in advance, may not run beyond 30 calendar days from the start of trading, and may never be executed above the offer price. That last constraint is what makes the offer price a soft floor rather than a guarantee — once the greenshoe is exhausted, the bid disappears.

Final Results

• Final IPO offer price: €24.00 (book 3.3x covered on the base offering)
• Total offering including greenshoe: 23.0m shares for €552.0m gross
• Net proceeds to the company: €347.4m; to the selling shareholders: €185.28m
• Post-IPO market capitalisation: €2,280.0m, free float 24.2%
• Stabilisation result in the downside scenario: €4.5m

The €24.00 offer price and the €2,280.0m market capitalisation become the reference points for everything that follows: the implied EV/EBITDA multiple that gets benchmarked against the listed peer group, the enterprise value bridge once the €347.4m of net primary proceeds is applied to debt, and the lock-up expiry three to six months out, when the free float typically steps up again.

Would you like to explore how the analysis changes if the greenshoe were structured as newly issued primary shares instead, or how a bookrunner decides to reprice the range downwards mid-bookbuilding when demand fails to materialise?