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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
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