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The IPO process • Simplified user rights—Management of user rights should allow for easy restriction and access functionality quickly and easily. • Data management—Multiple file uploads should be possible, to save time. • Collaboration tools—Tools such as e-mail alerts, document notes and Q&A capabilities enhance the collaborative efforts of reviewer groups. • Site customization—There should be enough flexibility to customize the site to the owner’s specific requirements and to integrate corporate branding. • Intuitive interface—This should be simple enough that next-to-no training is required and users can quickly find documents. • Expanded rights management—This should be robust enough that the data room owner can administer the site for those seeking complete control. 3.4 Underwriting, marketing, and sale J.P. Morgan (Investment Banking) (a) Underwriting Role of the bookrunners: The company should carefully choose the joint bookrunners for the IPO and, in particular, the lead left bookrunner, because of the significant role that they play throughout the process. As the quarterback of the IPO, the lead bookrunner advises the company on all facets of the IPO process, assists the company in shaping its investment thesis to be used while marketing the transaction, guides the company with investors while on the road and develops the optimal pricing recommendation for the company. Advising the company: There are many complexities in an IPO process, including: • IPO sizing, including the primary versus secondary component; • leverage levels and overall capital structure at and post-IPO; • co-manager selection; • comparable company selection; • valuation; • roadshow presentation and investment thesis development; and • marketing strategy and roadshow logistics. Shaping the investment thesis: Perhaps the most important contribution that the bookrunners make during the IPO process is helping the company shape its investment thesis. From the registration statement that is filed with the SEC to the roadshow presentation that is delivered to investors, the marketing message that the company uses during the IPO is critical to its initial success as a public company. Through intensive diligence and drafting sessions, the bookrunners will become well versed in the company’s strategy and key selling points and will assist the company in effectively communicating those messages to investors. The registration statement and the roadshow presentation are the two most important marketing documents, allowing investors to quickly absorb the equity story and evaluate their investment decision. Marketing the transaction: While developing the marketing materials, the bookrunners will also develop a cohesive marketing strategy for the company. In order to maximize the success of the offering, the bookrunners will determine the most important regions to visit with the goal of reaching the largest number of high-quality investors that will become meaningful long-term shareholders for the company. For EGCs, another topic of discussion with the bookrunners is whether to take advantage of the JOBS Act provisions allowing them to “Test the Waters” prior to launch of the IPO, in order to assess potential demand for the offering and identify and address any issues that investors may raise. Setting the price range: Prior to being mandated and throughout the IPO preparation process, the bookrunners will keep the company apprised of market conditions and trading valuations of its key comparables, as well as the subsequent implications for the company’s proposed IPO valuation. The bookrunners will use a combination of comparable companies’ value, broad market conditions and recent IPO value to determine the appropriate value for the company. Once the appropriate equity value range is determined, the bookrunners will advise the company on an appropriate “price range” with which to market the offering, which is typically $2 wide and falls in the teens (e.g., $14–$16). The company will often need to execute a stock split—or more commonly a reverse stock split—to solve for this desired price range. Key players in the investment bank: • Investment banking coverage: The investment banking coverage team consists of industry experts who typically own the client relationship. This team will be the key point of contact for the company throughout its life cycle for any investment banking advice or assistance it may need, including on the IPO, mergers and acquisitions, debt and capital structure. As such, the team will be or become experts on the company, its needs, its strengths and areas for development, as well as its overall vision and strategy. The coverage team will act as a liaison with the company and the equity capital markets professionals, who will be the captains of the IPO process, as well as any subsequent equity issuance that is desired. • Equity capital markets: The equity capital markets team sits between the investment banking team and the syndicate, sales and trading, and research functions, acting as a liaison between the private and public sides of the investment bank. This team advises the company on all of the execution-related decisions, liaises with research to collect public-side feedback, and coordinates with the sales and trading functions on market and investor color. • Syndicate: Within most equity capital markets groups lies a syndicate function, which is the main point of contact during the roadshow. The syndicate coordinates with sales in entering investor orders into the book, speaking directly with investors regarding questions or concerns, developing the roadshow and marketing strategy and ultimately assisting in a pricing recommendation. • Sales and trading: The sales force acts as the front line of the investment 40 NYSE IPO Guide
The IPO process bank in dealing with investors, calling clients in order to schedule meetings, soliciting feedback on the transaction (both qualitative and quantitative) and ultimately entering orders. It works closely with the traders in order to determine supply and demand and execute trades for the investors. Role of the co-managers: The co-managers on an IPO are typically significantly less involved in the day-to-day advisory role for which the bookrunners are responsible. They are, however, involved in the majority (if not all) of the diligence conducted. The co-managers’ research analysts will also take part in all analyst diligence that is conducted. The primary role of the co-managers is to underwrite additional shares in the offering, provide additional research coverage post-IPO and assist in market making once the stock is public. (b) Roadshow The roadshow is the pivotal portion of the IPO process, where the company (accompanied by representatives from the bookrunners) conducts a series of oneon-one and group meetings with investors who will potentially purchase the shares being offered in the IPO. Several weeks prior to launching the roadshow, the bookrunners will work with the company to determine the length and scope of the roadshow and to identify specific investor targets. Once the prospectus has been filed with the price range on the cover, the roadshow typically launches with a management presentation to the bookrunners’ sales force. The bookrunners will also create an internal sales force memo that will be used by the sales force. The memo is used as a “cheat sheet” by the salesperson when speaking to investors and gives him or her sufficient background to answer general questions. The bookrunners handle all roadshow logistics for the company. The roadshow typically lasts 8 to 12 days, depending on the size of the IPO, the scope of the business and the wishes of the management team, among other things. The roadshow typically consists of some combination of the following cities/ regions globally: • New York; • Boston; • Mid-Atlantic (Philadelphia, Baltimore); • Mid-West (Chicago, Minneapolis, Kansas City, Denver); • Texas (Dallas, Houston); • West Coast (San Francisco, Los Angeles, Salt Lake City, Seattle); • London; • Frankfurt/Milan; and • Hong Kong/Singapore. A typical roadshow day involves: • five to seven one-on-one meetings and/ or conference calls; • a group breakfast and/or lunch; and • travel to the next day’s city. Each investor meeting typically lasts 30 to 45 minutes and can take the format of either a formal management presentation of the roadshow slides with subsequent Q&A or simply informal Q&A, depending on the investor’s familiarity with the prospectus and/ or the roadshow slides. Investors have access to the management presentation (audio and video), as well as the roadshow slides via NetRoadshow, a system by which the bookrunners make these documents available to relevant investors utilizing a password-protected system. The SEC also requires similar information to be made available to retail investors via retailroadshow. com, where only the management slides are available. Both systems make the management slides available during the marketing period only; upon pricing, all materials are taken down and no longer accessible. After each investor meeting, the sales force person responsible for covering each respective account will follow up with the investor to get feedback on the meeting, the company, and modeling/valuation and whether it is inclined to place an order. (c) Book-building process The goal of the bookrunners is to convert accounts into the order book as early as possible. On an IPO roadshow, it is not uncommon for accounts to begin coming into the book in small sizes during the first day or two of the roadshow. Typically, these are smaller accounts (frequently hedge funds) that like to participate in IPOs as a matter of practice and would not be seen on the roadshow. In addition, Europe is often the first region visited during a roadshow and European accounts therefore tend to come into the order book early in the process. When the book begins to build, investors will fall into two camps: Those without a price limit (market order) and those that have scaled orders at various prices. For example, if the IPO filing range is $16 to $18 per share and Investor A has a market order of 1 million shares, the order stands at 1 million shares at $16, $17, $18 and potentially even above the filing range. A scaled order by Investor B, in contrast, may indicate 1 million shares at $16, 750,000 shares at $17 and 500,000 shares at $18. The goal of the bookrunners is to get as many market orders as possible in order to maximize price for the company, while still balancing appropriate value for investors and ideally achieving a Day 1 trading “pop” of approximately 15%. Retail orders are also important to the order book, but typically retail demand is not a driver of overall pricing, as retail investors are “price takers.” Key points are emphasized to investors throughout the roadshow in order to indicate the strength of the order book and therefore the potential success of the IPO. Key terms include “level of subscription” or “subscription rate,” which shows the number of shares in the order book relative to the number of shares being offered. When the offering is oversubscribed, investors will know that the demand for the offering is high and that their order will likely be cut back. The amount of price sensitivity in the book is also a key benchmark. Another key metric of success for the company is the “hit ratio,” which is the percentage of investors with which the company held a roadshow meeting that subsequently placed orders. The goal of the company and the bookrunners is to achieve as high a hit ratio as possible, indicating that the management team has successfully told a compelling story to investors on the road. For most IPOs, the majority of orders will come in the last two to three days of the roadshow. On pricing day, the NYSE IPO Guide 41
Page 1 and 2: NEW YORK STOCK EXCHANGE IPO Guide,
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Page 8 and 9: Preface Congratulations on making i
Page 10 and 11: Introduction: Advantages of a NYSE
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Foreign private issuers individual
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Foreign private issuers Level III A
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Appendices NYSE IPO Guide 109
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Appendices Appendix VI: Summary of
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Contributor profiles NYSE IPO Guide
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Contributor profiles (SEC) register
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Contributor profiles The Children
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Contributor profiles KPMG 345 Park
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Contributor profiles Morrow & Co.,
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