Roadshows Provide A Remarkable Opportunity
Simply put, Roadshows are a marketing tool to attract investors. As such, they are one of the most important steps by a company planning to issue securities through an IPO and, afterwards, along its new life as a listed company.
Roadshows are considered critical to the success of an IPO, and subsequently to increase the value of the company, as companies need to impress institutional investors so that at least a few of them are willing to invest. Also, some large investors (but also small investors including hedge funds) will not put money in a company without having the opportunity to meet with senior management. Roadshows provide that opportunity.
Roadshows cover a variety of topics including the company’s history and any future plans for growth. Information about the company’s current assets, whether tangible or intangible, can be presented, as well as a sales pitch regarding the upcoming offering. The Roadshow allows the company the opportunity to answer questions that may be posed by skeptics in the marketplace. It provides a forum where the company can communicate directly with potential stakeholders to address any potential concerns. The underwriters also use information gathered from investors to complete the book-building process, which involves gathering prices potential investors are willing to pay for the offering.
An Investor Roadshow is usually classified into two: a “Deal Roadshow” and a “Non-Deal Roadshow”.
Deal Roadshow: The classic example is an IPO Roadshow, and Roadshows for capital increases. An investor roadshow is often conducted by a previously privately held company that is going public and conducting an initial public offering (IPO). It is, in effect, their way of “advertising” the shares in the IPO. Any investor relations officer should know the importance of hitting the ground when it comes to developing a strong strategy to help the company go public in the right moment and in the right way and to support the company’s value soon after. It’s all about creating relations, but it is also relevant to manage expectations.
Non-deal Roadshow: Investor roadshows are also conducted even without the intention of selling or offering anything. Often, executives of a company will undertake a roadshow with their current investors, but also with the added motivation of being able to attract additional, new investors in the process.
Following to some hard years for the financial markets, in 2015-2016, overall large-cap companies reported an increase in Non-Deal Roadshow activity, while activity by mid and small caps held steady.
Management participation in investor events declined broadly and significantly – while reliance on IROs to lead investor events increased broadly and significantly. Furthermore, in general, conferences are becoming not the only place to market, the majority of companies want and need to supplement their outreach with direct corporate/buy-side interaction.
Roadshow Scheduling
The organization of the Roadshow is something every IR department engages in, although there are many approaches and differences in the timing, locations and execution dates of the roadshow. Following the quarterly results is still a popular time, but long-term investors are increasingly calling for company visits outside of the reporting season, when they can discuss the long-term numbers without the conversation being dominated by the “noise of results”.
In terms of location, London is the European hot spot, beneath the top two US capitals NY and Boston, the second being Frankfurt – which is also ranking 6 worldwide. Furthermore Asian respondents are now more a more a big supporter of investor conferences (source: Global Roadshow Report, BoAML, 2015-2016). According to the NIRI, the National Investor Relations Institute, the average IRO spends 1.25 days in each city he or she visits – based on 2015 findings. So, usually everybody needs to work fast – which supports the concise story strategy.
What If Corporate Access And Investor Relations Switched Roles For A Day? Berenberg – in the study “Berenberg’s 11 rules of roadshows” in 2016 drew down some rules for the good roadshow. For instance, they consider as extremely relevant to put some pressure on the corporate access provider asking them to suggest new cities or regions and investors. In general terms they say companies must be demanding: it’s their Roadshow. IROs just must be aware they may have to make some exceptions for the really big fish or during extremely busy times in the market.
We strongly recommend not to exclude hedge funds. Hedge funds run a lot of money and account for a large portion of daily trading. Many limit shorting activities to currencies and indexes rather than to individual stocks – and some of those huge Tier 1 long-only investors run short books, too. Also, a meeting with an aggressive hedge fund known to be shorting the stock can be useful; closing a short position is nearly as valuable as increasing a long-only investor’s position.
In the end, our question is: What is the most productive use of time? According to Berenberg, it’s a balance between roadshows and conferences. Conferences are an efficient use of time for seeing a large number of investors but sometimes investors rush from one meeting to another and a 35-minute ‘speed date’ is less likely to get key investors over the line; while your “own” Roadshow may certainly provide the right visibility: investors come for your company and want to listen to your story so that at the end of the meeting are willing to buy, if you convince them. The role of the broker and of the corporate access provider is to make sure that the company is introduced to the potential investors specifically targeted for them. In a digital age, we think it is also useful to disseminate information earlier, where investors can learn more about the overall market, the industry, and the company itself, but the last part, ultimately the final check-mark almost every investor will want, is who are the people who will make all this happen? That is the path in which people invest.
In conclusion, we believe the discussion is not whether or not a Roadshow will work – they have always been a part of Top Management and IROs strategies. It is during the meetings that an investor can get all of their questions answered, and while you can do that in email, people also look for non-verbal cues – do they trust this person? Is this management team aligned with my vision? Is it a long-term or short-term strategy? It may happen that investors just comment: ‘I didn’t invest in A or B because our visions weren’t aligned” or “simply the management did not convince me”. You can’t ascertain that without being face to face.
Fine, this may happen, but make sure first of all that you or your provider has targeted the right investor – those interested in your stock as they are familiar with the sector, with your peers and, ultimately, can invest in your region. Investors targeting is one of most important among the brokers or corporate access providers’ services: to seek your potential investors with accuracy becomes more and more a key success factor of the IR strategy.
Simona D'Agostino Reuter
Simona is a finance professional with 15 years experience in Investor Relations and Financial Communications and a lengthy track record in both B2B and B2C companies. For several years, she has been Head of IR for the blue-chip group and gaming leader Lottomatica-GTECH (now IGT, listed on NYSE), based in Italy and in the US. She gained overtime an extensive experience in IR and in managing investor perceptions also through difficult transitions and challenging times.