An IPO Roadshow is an essential stepping stone for a company to go public. Before the IPO opens for subscription, senior administration and the appointed merchant bankers or BRLMs interact with potential investors to describe the business model, its financial position and future scope. This is to help investors make informed choices and for the company to gauge public interest.
Key Takeaways
-
IPO roadshows serve as a communication channel between companies and potential investors.
-
Investors use this as an opportunity to understand the stance and scope of the company.
-
The company takes information and feedback gathered from the roadshow to shape IPO pricing.
-
While hugely informative, IPO roadshows also require a considerable amount of time and resources.
What Is a Roadshow in IPO?
A roadshow in IPO is a series of presentations about a company’s business, financial performance, growth possibilities, and the proposed IPO presented by its senior management and appointed merchant bankers.
This presents prospective investors with an opportunity to assess and understand the company and be informed about their financials, risk factors and future planning.
Besides, what the company stands to gain from the IPO roadshow is insight into investor opinions and market demand.
The entire procedure often goes over several weeks through multiple finance hubs in India and in certain cases even through virtual events.
Note: The roadshow is not the IPO itself but an integral part of the pre-issue process, the functionality of which is to facilitate and create opportunities of communication between the issuer, management and potential investors before it is opened up to the general public.
Read More About: What Is IPO
Why Is IPO Roadshow Conducted?
The primary function of IPO roadshows is to help companies to successfully advertise and showcase their business proposition to potential future investors before the public issue. Management takes this as an opportunity to expand upon their business model, transparently showcase their finances and outline their future scope.
This communication channel between the company and investors also allows investors to assess the risk factors and evaluate the company before taking the decision to invest.
Therefore, what roadshows essentially do is set up an important communication channel and encourage transparent discussions within the broader IPO process.
How Does IPO Roadshow Work?
Step 1: Prepare the Investor Presentation
The company has to compile and present information that covers the company’s business, financial performance, projected growth strategy and perceived risks for potential investors. The information gathered must be compliant with applicable SEBI requirements.
Step 2: Meet Institutional Investors
Company executives interact with potential institutional investors in group settings or through one-on-one spaces. Investors utilise these conversations to ask pertinent questions and seek clarification about the company’s prospects.
Step 3: Assess Investor Interest
The feedback received from investors in the Q & A sessions helps company management to gauge the interest levels for the proposed issue. These are very useful in figuring out the market condition and predicting how the IPO would be received.
Step 4: Support IPO Pricing
Although the roadshow itself does not determine the final IPO price, investor feedback contributes greatly to price discovery and the book-building process.
Who Participates in IPO Roadshow?
Potential investors, the issuing firm's lead managers or merchant bankers, and representatives of the company are typically present at an IPO roadshow. The business, financial performance, and future plan of the corporation may be explained by senior executives. Lead managers support investor communications and the issue process.
Mutual funds, insurance firms, and other qualified investment organisations are examples of institutional investors that can attend meetings and assess the proposed offering. Fund managers and analysts may also review the company's data and pose enquiries. Depending on the issue's structure and nature, different participants may be involved.
Types of IPO Roadshows
Roadshows have different formats based on the investor interactions and locations as follows:
|
Physical Roadshows |
Virtual Roadshows |
Domestic Roadshows |
International Roadshows |
|
Company representatives meet investors in person at various locations. |
Presentations and meetings are conducted virtually through various digital platforms. |
Meetings take place within India. |
Investors abroad are approached in compliance to regulatory legal framework. |
Note: It is important to note that all forms of roadshows have to adhere to applicable disclosure and regulatory requirements as prescribed by SEBI.
How Long Can IPO Roadshow Be Lasting?
IPO roadshow typically lasts for two weeks but might often extend longer based on the environment of the market, complexity of the issue and size of the company.
A roadshow usually takes place at a time period that leads up to the IPO. Usually occurring before the book-building activities start.
The timeline is also dependent on the filing and dissemination of the offer documents and the opening and closing of the particular issue, thus making it slightly complicated to determine a fixed duration.
Benefits of IPO Roadshow
Roadshows in IPO work to benefit not just the investors but also the company. Investors are presented with the opportunity to communicate with company executives and high-level management. Providing them with a platform to understand the company’s operations, investment opportunities and risk factors, thus contributing significantly to informed investment decisions.
On contrary, companies also stand to benefit hugely from IPO roadshows, as these are essentially the IPO’s first foray into public forums, meaning that it's an opportunity for the senior executives to explain their business strategy, financial situation and future scope.
Also Checkout: Upcoming IPO
Limitations of IPO Roadshows
Roadshows in IPO also come with their fair share of limitations:
-
The most significant of them being the huge cost of conducting a detailed roadshow at multiple locations.
-
Roadshows take a considerable amount of time and elaborate planning and manpower.
-
While roadshows can provide a company with prospective institutional investors, they don't provide individual retail investors.
-
Investor interest is subject to change based on many factors, most significant of them being the broader market conditions.
-
Positive feedback during roadshows does not automatically guarantee strong IPO subscription and investors therefore must examine all available information before making investment decisions.
IPO Roadshow vs Book Building
|
Basis |
IPO Roadshow |
Book Building |
|
Objective |
To communicate the company’s business IPO and help potential investors to evaluate and make informed decisions about the company. |
Helps to determine the market demand and establish and allocate the final issue price in accordance with industry standards. |
|
Timing |
Happens during pre-issue marketing when investors need to be engaged with the company details. |
Happens after the market interest and demands are available, i.e., when investor bids are submitted. |
|
Participants |
High-level company executives, company management and potential investors. |
The Company (Issuers), BRLMs and investors. |
|
Pricing Role |
Investor feedback collected from roadshows in IPO affects the broader pricing process down the line. |
Has a direct contribution to the price discovery through investor bids and market trends. |
Conclusion
IPO roadshow is a showcase of the finances, business structure, scope and future prospects for potential investors. It helps bridge the gap between the time when a company goes public and the time when investors evaluate the company and submit their bids. The roadshows have multiple aspects, like presentations, one-on-one or group Q&A sessions and more. Roadshows are an important stepping stone in the IPO process.
Looking to invest? Open a Demat Account with Angel One and start trading seamlessly.
