Generating Investor Demand
There are three main objectives of an IPO:
- Raise sufficient proceeds for the company and/or shareholders
- Optimise the price at which shares are sold
- Provide the company with a strong and stable shareholder base for the future
All of these objectives are a function of the quantity and quality of investor interest secured in the IPO. Companies should be looking for investors in their IPO who have a strong understanding of the company’s equity story, can hold the shares long term and can participate in future fund raisings to support the company’s growth.
So in essence…
- IPO success should be judged not just with the quantum of demand generated, but by the quality and long term sustainability of that shareholder base post listing.
How do you choose the right advisers to tap your target audience?
Ensure that you have selected a bookrunner (or bookrunners) who are well positioned to market the story. Factors will include experience and advisory capabilities in your sector and critically a research analyst who is well respected in the market, who understands your story and can position your investment case effectively to investors.
What does the IPO marketing process look like?
- Syndicate analyst research: published post intention to float announcement and used as a base for intensive investor education.
- Price range: set at the end of the investor education phase based on feedback from investors on valuation.
- Management roadshow: the most important phase, where senior management (typically CEO, CFO) meet with a large number of investors in one-on-one and group meetings, typically over a 2 week period.
- Bookbuilding: typically run in parallel to the management roadshow, where the bookrunner(s) take orders from investors and build a book of demand for the shares at different prices.
- Setting the price: The price will be agreed between the company, its shareholders and the bookrunners at the completion of the bookbuilding process. The debate will be where to set price so that proceeds are maximised but consistent with providing the company with a high quality investor base and a supportive aftermarket.
When should you begin to engage with investors?
Courting investors starts well before IPO. It is increasingly common practice to meet with investors 6-12 months ahead of an IPO so that they can build up an understanding of the company well ahead of time. However, this will mean working with advisers earlier to refine your story – after all, there’s only one chance to make a first impression!