Roadshow

What is a roadshow?

Roadshow refers in finance to a compressed series of presentations and meetings in which a company's leadership presents the company and an investment offer to many investors. In general usage the term also describes a promotional tour at changing locations, for example for new products. In finance the term has two meanings, which differ in occasion, participants and legal framework:

• Roadshow in an IPO: The management board of the future listed company, usually a stock corporation (Aktiengesellschaft), meets institutional investors during the offer period, that is, funds, insurers and other professional investors. It is organised by the issuing banks, which place the shares with the investors. It is part of a statutorily regulated offer procedure with an approved securities prospectus and ends with the setting of the share price.
• Roadshow in a funding round: The management of an unlisted company, usually a GmbH (German limited liability company), holds its discussions with selected venture capital and growth investors in a bundled form within a few weeks. It is not a formal procedure but a way of organising the approach to investors and ends with one or more offers.

Which meaning is intended follows from the context. For most technology companies the roadshow is a phase of the private funding round. The roadshow in the sense of an IPO becomes relevant only with its preparation. Listed companies also use roadshows without a specific offer to maintain their relationships with investors.

The roadshow in an IPO

Position in the process

For an IPO with equity, the company needs the legal form of a stock corporation, a partnership limited by shares or an SE (European company). A GmbH is first converted by a change of legal form under the German Transformation Act (Umwandlungsgesetz, UmwG), usually into a stock corporation. The company appoints a syndicate, that is, a group of issuing banks. Due diligence, preparation of the securities prospectus and the analyst presentation follow. In it, the management presents the company to the analysts of the syndicate banks, who write analyst studies (research reports) on this basis.

After the intention to list is announced, the analysts present their studies to selected investors. Their feedback feeds into the price range within which the shares will later be offered. With approval and publication of the prospectus the offer begins, and during the offer period the management meets the investors on the roadshow. The offer period often lasts one to two weeks.

Process and bookbuilding

On the roadshow, the chief executive officer and the chief financial officer usually present. They meet institutional investors in one-to-one meetings, in group meetings and at presentations in the major financial centres, today often supplemented by video meetings. The basis is a roadshow presentation with the equity story, the financial figures, the strategy and the key terms of the offer. In parallel, the lead managers, that is, the lead banks, collect the investors' purchase orders with quantity and price limit in an order book in bookbuilding.

At the end of the offer period, the company, selling existing shareholders and syndicate banks set the offer price on the basis of the order book and allocate the shares. The quality of demand counts as much as its size. Long-term oriented investors are often favoured in the allocation. The roadshow thus decides the price, the composition of the shareholder base and, in the unfavourable case, whether the IPO is postponed.

Legal framework

A public offer of shares requires a securities prospectus, which for German issuers is usually approved by BaFin (the German Federal Financial Supervisory Authority). The European Prospectus Regulation requires that advertising for the offer and other information on the offer be consistent with the information in the prospectus. For the roadshow this means that the presentation and answers contain no material information that is not also in the prospectus. Individual investors may not receive an information advantage. As soon as admission to trading has been applied for, the Market Abuse Regulation also applies, which prohibits the unlawful disclosure of inside information.

The roadshow in a funding round

In private funding rounds, roadshow denotes the phase in which the company approaches and meets selected investors in a short time window. It is prepared by a longlist, a list of suitable investors that is reviewed and prioritised by investment focus, ticket size and decision path. The pitch deck, financial model and data room are ready before the first meeting takes place. Unlike in an IPO, there is regularly no securities prospectus here. In its place come the documents in the data room, the investors' due diligence and the warranties in the participation agreement.

The purpose of the compression is comparability. If all investors speak with the company in the same period, they reach their decision points at roughly the same time, and the offers arrive in a window in which they can be negotiated against each other. An approach stretched over many months, by contrast, means that an early term sheet expires before later interested parties have decided and that the figures in the deck go out of date.

Planning and timing

A staggering in two waves is common. A first, smaller wave serves to sharpen documents and answers on the basis of feedback. The preferred investors follow in the second wave, once presentation and answers are in place. The first meetings are concentrated within a few weeks so that in-depth discussions and partner rounds follow in a common period.

Whether meetings take place in person or by video depends on the phase and the investor. First meetings are often held by video. Partner rounds, management presentations and meetings with a possible lead investor, who is to lead the round, more often take place in person. An anchor investor who commits early to a stake makes it easier to approach further investors, because valuation and terms thereby acquire a reference point.

Practical example: roadshow in a Series C funding round

A software company with EUR 12 million in annual recurring revenue (ARR) plans a Series C, a late-stage growth round, of EUR 40 million. The roadshow is planned over ten weeks:

1. Weeks 1 and 2: first meetings with eight investors of a first wave, followed by revision of the slides on customer retention and margin development.
2. Weeks 3 to 5: first meetings with 22 investors of the second wave, 14 of them by video.
3. Weeks 5 to 8: in-depth discussions with eleven investors, data room access for seven of them, four partner rounds.
4. Weeks 9 and 10: three term sheets, negotiation with two investors, signing of a term sheet with exclusivity for the due diligence.

In this example, 30 first meetings lead to three offers. The timing is decisive: because the second wave was approached within three weeks, the three term sheets were available within ten days and could be negotiated against each other. With an approach over six months, the first offer would probably have expired before the third arrived.

Distinction: roadshow, investor meeting and bookbuilding

• Investor meeting: the individual meeting with an investor. The roadshow is the planned sequence of many such meetings in a common time window.
• Bookbuilding: the procedure by which the syndicate banks collect purchase orders in an IPO and derive the offer price. The roadshow is the presentation that generates this demand.
• Analyst presentation: the management's presentation to the analysts of the syndicate banks before the offer begins. It is aimed at those who report on the company, not at the buyers of the shares.
• Direct listing: the admission of existing shares to trading without an offer of new shares. A roadshow with bookbuilding is not needed because nothing is placed.

Common mistakes

• Stretched approach. Meetings spread over many months produce no comparison between offers and let the figures in the deck go out of date.
• Starting before the documents are ready. If meetings are scheduled before the financial model and data room are in place, time is lost on follow-up deliveries in the phase in which investors want to decide quickly.
• Preferred investors first. In the first meetings, presentation and answers are not yet in place. It is advisable not to approach the most important investors with the first version.
• Differing statements from meeting to meeting. In an IPO this is a capital markets law risk, in the private round a credibility problem as soon as investors compare notes.
• Overloading the management. A dense roadshow ties up the management for weeks. Without a deputising arrangement, the current business suffers, and weaker monthly figures reach investors while the process is still running.

Frequently asked questions

How long does a roadshow take?

In an IPO usually one to two weeks within the offer period, after several months of preparation. In private funding rounds the bundled discussion phase often extends over six to ten weeks, from the first meeting to the term sheets.

Does a roadshow still take place in person today?

Partly. First meetings in private rounds are often held by video. In an IPO and in late funding rounds, important meetings are still often held in person. Many roadshows combine both forms.

Who takes part in a roadshow?

In an IPO, the chief executive officer and the chief financial officer, accompanied by representatives of the syndicate banks. In private rounds, the founders and management, in later meetings joined by the head of finance and other executives, plus the adviser who runs the process.

What is a non-deal roadshow?

A series of investor meetings without a current offer. Listed companies use it to inform existing and potential shareholders about strategy and business development. The ban on unlawfully disclosing inside information applies here too.

Can a roadshow influence the valuation?

Yes. In an IPO, demand in the order book determines the offer price within the price range. In private rounds, several term sheets available at the same time strengthen the company's position on valuation and terms. Weak response works in the opposite direction.

The Roemer Capital view

In the funding rounds Roemer Capital supports, it plans the roadshow backwards from the desired date of the term sheets. This determines by when the financial model, deck and data room must be ready and in which weeks the first meetings fall. It prepares the data room so that it can be made available within 24 hours. It checks the longlist beforehand for which investors actually cover the round size and stage.

The bundled discussion phase is only one section of a round that takes six to eight months in total. Roemer Capital keeps it as short as possible because the management is less available for the operating business during this time. After each week it evaluates the feedback and adjusts the documents before the next meetings take place.