The Rise of Flat Tax
Governments all over the world generally levy graduated taxes on their population. This means that as the income being taxed increases, the tax rate also increases. Under a graduated tax structure, some amount of income is exempted from the tax. Then, there is a different tax slab, which becomes applicable as soon as the income […]
Payment Mechanisms in Public-Private Partnerships
In every public-private partnership, it is the job of the public party to provide remuneration to the private party. There are various mechanisms in which this payment can be provided. In this article, we will discuss the mechanisms which are commonly used in public-private partnerships. User Charges User charges are a commonly used mechanism when […]
Managing the Operational Metrics of a Startup
Founders spend a lot of their time trying to understand how to deal with potential investors. They try to understand the various techniques that need to be deployed in order to ensure that prospective investors view the startup company as a compelling proposition. In their quest to project their startup company as the best, founders […]
What are Development Impact Bonds and How are they Evaluated
Development impact bonds are a revolutionary new type of bonds which are being introduced in the market. These bonds have been introduced to ensure that the profit motive of the financier is also met while meeting the development needs of the social entrepreneur. What are Development Impact Bonds? Development impact bonds are a three-way financial […]
Lockbox Service Provided by Banks
What is a Lockbox ? Lockbox is an additional service provided by banks in the United States. This service allows companies to drastically cut short or even eliminate the tasks that need to be performed by accounts receivables departments. The logic behind the lockbox system emanates from the concept of economies of scale. When every […]
Roadshows are an important part of the investment banking process. This is because this is the stage where all the stakeholders i.e., the company issuing shares, the investment bankers, as well as potential investors, are all present at the same place. Roadshows are generally undertaken by private companies that are looking to list on a stock exchange. However, they could also be for a government entity that is being considered for privatization.
Roadshows play an important part as they help in gauging the demand, which ultimately decides the pricing of the stock issue. In this article, we will have a closer look at what roadshows are and how they influence the investment banking process.
A roadshow is a series of meetings that are undertaken by the investment bankers and the issuing company in their bid to woo the investment community. Roadshows are not events where actual stock sales take place. They are primarily meant for information dissemination for both sides. On one side, the management of the company tries to explain to the investment community why their company is such a great investment. At the same time, the investment bankers are interacting with potential investors in order to gauge their interest in the underlying opportunity. Investment bankers need to manage the information dissemination from both sides in order to increase the probability of a successful public issue.
The name roadshows can be taken quite literally. This is because, during roadshows, the investment bankers, as well as the management of the issuing firm, have to spend a considerable amount of time traveling i.e., on the road. It is not uncommon for investment bankers to have multiple meetings in the same day. These meetings may be scheduled in different cities and may include travel in between.
Generally, investment bankers organize one meeting per city from where they expect investors to show interest. For instance, for a global securities issue, investment bankers may schedule meetings in New York, London, Tokyo, Singapore, etc. Investors with similar interests are generally grouped together so that the presentation can address their concerns. For example, mutual funds are often grouped together, and in other cases, high net worth individuals may also be grouped together. Since these meetings involved top-level personnel from the issuing company, they are finished within a short span of time so that the high-level managers can get back to their day to day routine of managing the company.
It is important to note that even though investment bankers are the ones who are organizing these roadshows, the issuing company is still in charge of the content. Obviously, they take help from investment bankers while preparing the content. However, once the content is prepared, who gives the presentation also has to be decided by the issuing company.
Investors generally prefer that a person with the required authority and knowledge gives the presentation. This is the reason why chief executive officers and chief financial officers are generally the ones giving the presentations. The presentation is multimedia-based. However, written material is often handed out at the end of the presentation. Also, it is common to have a website wherein the multimedia presentation, as well as the text, are available for the investors to download.
The investment banker plays an important role in the presentation. This is because the number and quality of investors in the roadshows are largely influenced by the investment bank. Also, investment bankers are simultaneously taking feedback from different classes of investors. This helps them gauge the potential interest of investors at different price points.
Price discovery is an important outcome of these roadshows. Investment bankers meet with different types of investors who may not be connected to one another. Hence, the aggregate of their reaction and sentiment to the contents of the roadshow helps the investment bank gauge the price at which they will be able to sell the issue. If they see overwhelming demand from different investors, they often raise up the prices. If not, they inform the issuing company about the same. The issuing company can then decide whether they want to delay the process or want to continue with it. Roadshows are often an informal start to the book-building process. The institutional investors who show the most interest during the roadshows are mostly the ones that end up buying the issue.
It is important to understand that roadshows can be classified into two parts i.e., deal based roadshows and non-deal roadshows. Deal based roadshows have already been described above. They are generally done before IPO’s in order to prop up investor interest and determine the correct share price.
However, in non-deal roadshows, there is no intent to make a deal or a sale. Instead, the roadshow is done with the intention of disseminating information. For instance, it is common for companies to do roadshows for their investors to regain their confidence after a bad year-end, a merger, or even if the company has received some bad publicity in the recent past.
In a sense, roadshows are like trade fairs and other corporate events. This is the reason why they are often organized by event management companies. However, the product being sold is the shares of the company, which is what makes the roadshow unique.
Your email address will not be published. Required fields are marked *
