It doesn’t matter if it’s a relatively modest sum involved or a potential record-breaker, if a business is going public, issuing a bond or seeking direct investment, it ought to be aiming high. It should also know that there are ways and means of raising the stakes, and that one of the best tools available to ratchet up the excitement is the corporate roadshow.
When China-based diversified multinational conglomerate Alibaba Group Holding Limited debuted on NYSE in 2014, it earnt the as-yet unsurpassed record for the largest ever IPO at US$25bn (this may be surpassed by the planned US$25.6bn Saudi Aramco IPO). In November 2019 the firm was seeking a US$13bn secondary listing in Hong Kong. Roadshows were very much part of its monumental funding effort, with the secondary listing roadshow reported by the FT as being a “week-long” effort.
Whilst the numbers may vary considerably from company to company, the process of meeting potential investors to explain what the business is about and what investment in it could mean, is all about generating excitement and building rapport. As such, every successful roadshow starts with strong stage management and a deep understanding of investor expectations.
Deal or no deal?
Roadshows can take various forms and can typically be divided into two strands: deal-related, and non-deal related. A deal-related approach announces the intention of a business to come to market or secure further funding. A non-deal approach is intended to offer existing investors a progress update (serving to consolidate the relationship), or perhaps signal future issuance. Whether going public, issuing a bond or seeking direct investment, most firms will appoint an underwriter – usually one of its core banks – to help develop the documentation, work with ratings agencies, and advise on the creation of investor presentations for the roadshow.
When an announcement for a bond or IPO is to be made, the news will typically be spread by the underwriting bank’s sales force to its institutional investor client base. Announcements tend to be picked up quickly by various investor-specific news channels (such as Bond Radar), financial media outlets (such as Bloomberg) and trade press. Depending on the size of the company and the proposed deal, it may also be picked up by mainstream financial media (such as WSJ and FT).
Where once a roadshow could cover both new issuance and investor updates, more established borrowers tend to divide their roadshow efforts, notes Mark Kitchen, Head of Northern Europe DCM, Bank of America. This means more are now engaging with investors on a non-deal basis by way of a regular (often annual) update, purposefully keeping this at arms-length from any issuance plans. “The rationale for this separation is that when the firm does want to issue, it enables a more nimble and flexible window of activity, helping to minimise market risk,” he says.
Announcing a deal-specific roadshow will be underpinned by some demanding logistics. It will take a few days to set up the meetings, and there will be a few days seeing investors and gathering feedback, after which the company is clear to issue. A minimum of a week will have passed between announcing and being able to execute in the market, notes Kitchen. In a volatile world, over that time, a lot can happen (maybe a provocative tweet from a US President) and the global markets can change quickly; this is a major source of risk for an issuer.
If, however, the investor work has been carried out upfront, for example, around results time, it allows the company to monitor the market closely and pick the day it wishes to issue.
With that timing choice open to it, the company can announce actual issuance on the day, do the book-building in the morning, and pricing that afternoon; its market risk is thus only intra-day. “The nature of some of the macro-economic risks in the current market means that, from a corporate perspective, there will be a preference to try to minimise that risk with intra-day execution,” explains Kitchen. “Issuing without marketing is a risk in itself, but doing it away from a specific trade makes sense.”
Telling the story
Although different companies will have different views on who precisely gets involved, a debt roadshow is generally orchestrated by the treasurer, usually bringing in the investor relations (IR) team to help pull together a slide-based presentation for potential investors. The underwriting bank will often counsel on the most effective areas of focus for the presentation.
When it comes to meetings, the treasurer will always be part of the process, often with an IR team representative. A smaller company may also call upon the CFO (although some CFOs of larger firms are quite hands-on in this respect too). The aim is to deliver the company story in the most appealing light. The CFO and IR rep will concentrate on the broader strategy of the company and its position in the market, with treasury picking up on treasury policy and core financial metrics such as cash flow.
The meetings will normally be set up by the underwriting bank. It depends on the target area as to how long the roadshow will last; a European event will typically cover three days, visiting London, Paris, Amsterdam and Frankfurt/Munich as part of a well-trodden path. Driven by the issuer’s objectives, there is a decision to be made as to whether the meetings are kept under the radar, with one-to-one (or one-to-two) meetings (usually for the largest institutional investors), versus a more public event where group meetings of up to 20 potential investors are held.
To help tell the best possible company story, companies will need to create a deck of between 25 to 35 slides. At the highest level will be a summary of the company, diving down into more detail about the business units and the markets in which they operate. An explanation of company strategy, and a broad view of company financials, including credit profile, will also be included.
“One area that is gaining a lot more focus, and something we now advise clients to include in a couple of slides, is sustainability,” says Kitchen. “A lot of investors, when looking at credits, will apply an ESG lens to their investment decisions. When telling the company story, it’s important to explain what is being achieved from a sustainability perspective and how ESG elements are impacting strategy.”
What to expect
To an extent, it depends on how well known the company is as to what happens at the meeting. Broadly, the presentation team must prepare for anything, from getting into the very basics of ‘who we are and what we do’, to some highly detailed questioning on financial metrics by investors.
Where potential investors are up to speed on the business and sector in front of them the meeting will often head straight into a Q&A session. “They often know what they want and what to ask and sometimes the presenting team does not even need to open its presentation pack,” notes Kitchen. Conversely, investors new to the sector and the business may require more background before asking questions.
“The message to treasurers,” says Kitchen, “is to be prepared for both ends of the spectrum: from an investor who has never looked at your name or sector before, to the seasoned analyst who already knows you but has some very detailed questions about the deal.” This means not only getting all the relevant information together but also drafting and rehearsing potential Q&As in advance, covering every potential question. “You get one shot at this in the meeting, if you come across as ill-prepared, it will reflect badly on the company,” he warns.
All aspects of the preparation should bear in mind that different investors have different needs; re-using slides from previous roadshows is not always possible. For example, bond investors will likely focus on mitigating any downside risks. They may seek reassurance that the business can protect its balance sheet to ensure sufficient cash flow is available to pay the coupon and redeem the bond. This is a very different investment proposition to an equity investor who is buying into a growth story and is hoping for a share price that will appreciate over time and who may therefore focus on the upside of entering new markets and major transformation projects.