“We’re raising SAR 300 million in our IPO.”
“So your company is worth SAR 300 million?”
“No - we’re worth SAR 1 billion.”
This conversation happens in every CFO’s office during IPO planning. The confusion between offer size (capital raised) and market capitalisation (total company value) is one of the most common - and costly - misunderstandings in capital markets.
Misunderstanding this distinction can lead to significantly underpricing an IPO or, worse, overpricing it and facing a failed offering. This guide decodes the math, explains what underwriters mean by “30% float,” analyses real Saudi IPO examples from 2024–2025, and provides a framework for setting realistic valuation expectations.
The Core Distinction
Offer Size (Capital Raised)
Definition: The amount of cash the company receives from selling shares to investors during the IPO.
Formula: Offer Size = Offer Price × Number of Shares Sold
Example:
- Offer price: SAR 50/share
- Shares sold: 6 million
- Offer size: SAR 300 million
Offer size is what flows into the company (minus fees). It represents the percentage of total equity you are selling - typically 20–30%. It is what investors subscribe to during book-building, and it determines underwriting fees.
Market Capitalisation (Total Company Value)
Definition: The value the market assigns to the entire business - all outstanding shares, not just what you’re selling.
Formula: Market Cap = Share Price × ALL Outstanding Shares (Post-IPO)
Using the same example:
- Share price: SAR 50/share
- Total shares outstanding after IPO: 20 million
- Market cap: SAR 1 billion
Market cap is how analysts compute valuation multiples (P/E, EV/EBITDA). It determines index eligibility and ranking among peers. It is the number that matters for how your company is valued - not the capital raised.
The Mathematical Relationship
If you sell 30% of your company in the IPO (the TASI standard):
Market Cap = Offer Size ÷ 0.30 = Offer Size × 3.33
| Offer Size | Float % | Implied Market Cap |
|---|---|---|
| SAR 300M | 30% | SAR 1,000M |
| SAR 500M | 30% | SAR 1,667M |
| SAR 1B | 30% | SAR 3,333M |
| SAR 75M | 20% | SAR 375M |
When you tell investors “we are raising SAR 300 million at 30% float,” you are implicitly claiming your company is worth SAR 1 billion. Make sure the fundamentals support that valuation.
Why the 30% Float Convention Exists
The 30% free float requirement on TASI is not arbitrary. It is designed to ensure sufficient liquidity for efficient price discovery.
Regulatory Requirements
| Market | Free Float Minimum | Purpose |
|---|---|---|
| TASI | 30% | Main market depth |
| Nomu | 20% | Growth-stage flexibility |
The Practical Logic
- Below 20%: Too few shares available → illiquid trading, wide bid-ask spreads
- 20–30%: Adequate for institutional trading, but potential for volatility
- 30–40%: Optimal range for efficient price discovery and stable trading
- Above 40%: Rare; typically means the founder is raising growth capital aggressively
A 30% IPO leaves founders with 70% ownership - maintaining effective control while accessing capital. This is the standard that balances liquidity needs with founder economics, and it has become the default for Saudi TASI listings.
Real Saudi IPO Examples (2024–2025)
Flynas (Aviation) - May 2025
- Offer size: SAR 4.1 billion
- Float: 30%
- Implied market cap: SAR 4.1B ÷ 0.30 = SAR 13.67 billion
- Offer price: SAR 50/share (priced at top of SAR 45–50 range)
- Shares sold: 82 million shares
- Revenue (2024): SAR 6.8 billion
- Implied price/revenue: 2.0x
Investor demand:
- Institutional oversubscription: 100x
- Retail oversubscription: 350%
- Total demand generated: SAR 400–600 billion
The SAR 4.1B “raise” generates the headlines, but the real story is the SAR 13.67B valuation the market assigned to the entire business. The extreme oversubscription indicates investors regarded this valuation as fair or even conservative at the time.
Fakeeh Care (Healthcare) - April 2025
- Offer size: SAR 2.9 billion
- Float: 30%
- Implied market cap: SAR 9.67 billion
- Offer price: SAR 58/share (top of SAR 52–58 range)
- Revenue (2024): SAR 3.2 billion
- EBITDA (2024): SAR 720 million
- Implied EV/EBITDA: approximately 13.4x
Healthcare typically commands premium multiples. Fakeeh’s 13.4x EV/EBITDA reflects defensive revenue characteristics, recurring patient relationships, and the Vision 2030 medical tourism backdrop.
Saudi Parts Store (Consumer) - June 2025
- Offer size: SAR 1.96 billion
- Float: 30%
- Implied market cap: SAR 6.53 billion
- Offer price: SAR 65/share
- Revenue (2024): SAR 2.8 billion
- Net income (2024): SAR 385 million
- Implied P/E: 17.0x
Strong net margins (13.8%) and broad retail recognition drove the 241x institutional oversubscription - the highest of any 2025 TASI deal.
Khaldi Logistics (Nomu) - March 2025
- Offer size: SAR 75 million
- Float: 20% (Nomu minimum)
- Implied market cap: SAR 375 million
- Offer price: SAR 30/share
- Revenue (2024): SAR 210 million
- Implied price/revenue: 1.8x
At 1.8x revenue versus 2.5–3.0x for comparable TASI logistics companies, the Nomu structural discount is visible in the numbers. The 1,949% institutional oversubscription reflects the small denominator effect: institutions bidding SAR 1.5B+ for a SAR 75M offering produces extreme multiples that signal demand intensity, but not necessarily that the company was underpriced to the same degree.
The Top 10 Saudi IPOs (2021–2025)
| Rank | Company | Sector | Offer Size | Float | Market Cap | Revenue Multiple |
|---|---|---|---|---|---|---|
| 1 | Flynas | Aviation | SAR 4.10B | 30% | SAR 13.67B | 2.0x |
| 2 | Fakeeh Care | Healthcare | SAR 2.90B | 30% | SAR 9.67B | 3.0x |
| 3 | Saudi Parts Store | Consumer | SAR 1.96B | 30% | SAR 6.53B | 2.3x |
| 4 | Al Baha Investment | Financial | SAR 1.88B | 30% | SAR 6.27B | N/A (holding) |
| 5 | Jahez | Technology | SAR 1.60B | 30% | SAR 5.33B | 4.5x |
| 6 | Alramz | Retail | SAR 1.50B | 30% | SAR 5.00B | 1.8x |
| 7 | Almoosa Health | Healthcare | SAR 1.26B | 30% | SAR 4.20B | 2.8x |
| 8 | Medgulf | Insurance | SAR 0.90B | 30% | SAR 3.00B | N/A |
| 9 | Al Rajhi RE | Real Estate | SAR 0.86B | 25% | SAR 3.44B | 3.2x |
| 10 | Tharwah | Logistics | SAR 0.37B | 20% | SAR 1.85B | 2.1x |
Eight of the top 10 used the standard 30% float. Sector valuation patterns are clear: technology and high-growth at 4–5x revenue, healthcare at 2.8–3.0x, consumer and logistics at 1.8–2.3x.
How Underwriters Think About Pricing
Understanding the underwriter’s framework helps set realistic expectations.
Step 1: Comparable Company Analysis
Select 3–5 peers by sector, size (revenue/EBITDA within 30–50%), market, and growth profile. Extract average valuation multiples from current trading prices, then apply an IPO discount - typically 10–20% - to price the offering below where comparable established peers trade.
Healthcare example:
- Peer 1: P/E 18x
- Peer 2: P/E 16x
- Peer 3: P/E 15x
- Average: 16.3x
- IPO discount (15%): → Target IPO P/E: 13.9x
The IPO discount compensates investors for the additional uncertainty of a newly listed company - shorter public track record, less analyst coverage, less price discovery.
Step 2: DCF Validation
Build a 5-year model with revenue projections, margin assumptions, and capex requirements. Discount at WACC (9–12% typical for Saudi companies) and a terminal growth rate consistent with long-run GDP.
DCF provides an intrinsic value anchor that complements the multiples-based analysis. Where the two converge, the pricing range is more credible.
Step 3: Precedent Transaction Analysis
Review pricing outcomes from recent comparable IPOs - where they priced within their range (top, middle, or bottom), first-day returns, and 6-month aftermarket performance. Recent precedents that performed well allow underwriters to target the upper end of the range.
Step 4: Institutional Soundings (Pre-Marketing)
Two to three weeks before formal book-building, financial advisors test price ranges with anchor investors and assess demand elasticity. If SAR 50/share generates 20x demand, there is pricing room above SAR 50. If it generates only 1.5x, the price needs adjusting downward.
Step 5: Final Pricing
Triangulate across comparable multiples, DCF, precedents, and real-time institutional demand. Standard practice is to leave 5–10% “first-day upside” - not because value is being given away, but because a modest positive first day creates momentum, generates media coverage, and establishes a strong foundation for the aftermarket.
2025 Pricing Outcomes
- 87% of 2025 Saudi IPOs priced at the top of their range
- Average first-day return: +8.5% (TASI), +12.3% (Nomu)
- Median first-day return: +5.2% (TASI), +9.8% (Nomu)
Priced at top with 5–10% first-day gain represents efficient pricing - demand exceeded supply at the top of the range, and investors received a modest premium for participation.
What excessive underpricing costs: If a company raises SAR 1B at SAR 50/share and the stock closes Day 1 at SAR 60 (+20%), the implied foregone proceeds are approximately SAR 200M - capital the company could have raised at the higher price.
What overpricing costs: A negative first-day return creates immediate underwater retail investors, institutional flippers exit, confidence evaporates, and the aftermarket struggles. This compounds over months and can make follow-on capital raises significantly harder.
Common Valuation Mistakes
Mistake 1: Confusing Offer Size with Valuation
“We need SAR 500M for expansion, so we’re doing a SAR 500M IPO - that’s our value.”
The correct framing: SAR 500M at 30% float implies SAR 1.67B valuation. Does the revenue, EBITDA, and growth rate support that? Work backwards from the required capital to the implied valuation, then validate the multiples.
Mistake 2: Anchoring on a Competitor’s Offer Size
“Our competitor raised SAR 300M - so should we.”
If your competitor has SAR 500M revenue and yours is SAR 300M, the same 2.0x revenue multiple means you should raise approximately SAR 180M (30% of SAR 600M implied market cap), not SAR 300M. Compare valuation multiples, not absolute offer sizes.
Mistake 3: Ignoring the Float Percentage Variable
“We want SAR 400M but don’t want to dilute more than 20%.”
SAR 400M at 20% float implies SAR 2.0B market cap. SAR 400M at 30% float implies SAR 1.33B market cap. Changing the float percentage changes the implied valuation by 50% - the market cap, and therefore the story you need to tell to justify the pricing, is materially different.
Mistake 4: Applying Peak Peer Multiples to an IPO-Stage Company
“The leading tech company trades at 25x P/E - so should we.”
That company has ten years of public track record, proven profitability, and deep analyst coverage. An IPO-stage company typically needs to offer a 15–25% discount to established peers. A 22x peer average after a 20% discount gives a target IPO P/E of approximately 17.6x - still a strong multiple, but realistic.
Practical Framework: Setting Your Valuation Range
- Identify 3–5 comparable public companies - same sector, similar size and growth profile
- Extract valuation multiples (P/E, P/S, EV/EBITDA) from current trading prices
- Apply a 15–20% IPO discount to the peer average multiple
- Calculate implied valuation range using your LTM revenue/EBITDA/earnings
- Choose float percentage based on capital needs and control preferences
- Derive offer size: Offer Size = Valuation × Float %
- Validate with DCF: If the DCF output falls within or near the multiples-derived range, pricing is credible; if there is a large gap, investigate the drivers
Sector Valuation Benchmarks (Saudi, 2024–2025)
| Sector | Revenue Multiple Range | EV/EBITDA Range | Notes |
|---|---|---|---|
| Technology / High-growth | 4–5x | N/A (pre-profit) | Network effect premium |
| Healthcare | 2.8–3.0x | 12–15x | Defensive + medical tourism |
| Consumer / Retail | 1.8–2.3x | 9–12x | Brand and margin driven |
| Logistics | 2.0–2.1x | 10–12x | Asset-light scaling |
| Industrial | 1.2–1.8x | 7–10x | Cyclical, capital-intensive |
Key Takeaways
- Offer size ≠ market cap: Offer size is capital raised; market cap is total company value. At 30% float, market cap equals offer size × 3.33
- Float percentage drives the implied valuation: 20% vs 30% float on the same offer creates a 50% difference in implied market cap
- 87% of 2025 Saudi IPOs priced at the top of range: Strong demand environment; first-day returns averaged +8.5% TASI, +12.3% Nomu
- Underwriter framework: Triangulate comparables, DCF, and precedent transactions; apply 15–20% IPO discount to established peer multiples
- Common mistakes: Anchoring on offer size rather than multiples; ignoring the float variable; applying peak peer multiples without the IPO discount
- Work backwards: Start from capital needed → derive implied valuation → validate against multiples and fundamentals
Sources:
- Argaam Financial Services (2026). “2025 IPOs: 13 listings on TASI, 24 on Nomu”
- Saudi Capital Market Authority (CMA). IPO prospectuses and pricing data
- Tadawul (Saudi Exchange). Market capitalisation and share count data
- EY Global IPO Trends Reports. Regional IPO benchmarking
This article is for educational and informational purposes only. It does not constitute investment advice, a financial promotion, or a recommendation to take any particular action. All data is sourced from publicly available information and is presented as of the dates noted. Readers should verify all information and consult an appropriately licensed professional before making any financial or corporate decisions.
Abdul Gaffar Mohammed, CFA
Treasury & Investment Professional