Price talk is a term that is used to describe the discussions that take place prior to the release of a new security. As part of this process, interested parties deliberate on what is considered a reasonable range of prices for that new security as it is made available to investors. It is not unusual for a wide range of professionals who participate in the marketplace to be involved in these discussions regarding identifying an appropriate price target, including brokers, dealers, and major investors.
Many companies will engage in price talk over an extended period of time prior to making an initial public offering. As part of the deliberations, a wide range of factors is considered. This can often include assessing the initial prices of similar offerings made by the same entity in the past, or comparable offerings made by competitors, and using those as benchmarks. The general financial stability and the reputation of the issuing company in the business community are often also addressed during price talk. Considering as many relevant factors as possible can allow those engaged in the discussions to make informed decisions regarding what that initial price should be in order to launch the new issue with the greatest degree of success.
As part of their services, investment bankers often engage in price talk with their clients. In some cases, independent brokers who have worked with shareholders in the past or have some other prior history with the issuing company may also be involved in these discussions. Often the outcome of the price talk is that the client is provided with valuable data that makes it easier to set a price for the new stock issue that is likely to attract the attention of investors and generate a great deal of return for the company within a relatively short period of time.
Depending on the complexity of the situation, price talk may take place for an extended period of time before the price is determined and the shares are made available in the marketplace. Factors such as the general economy, upcoming changes within the issuing company leadership, anticipated political events, and other shifts that could adversely affect the receptivity of investors to the new offering are carefully considered. Ideally, the price talk does include consideration of all relevant factors and results in the establishment of a pricing structure that ultimately benefits both the issuer and the investors who purchase the shares.