What it means
The format is fairly standard: a slide deck, a rehearsed twenty minute pitch, then questions, repeated six or eight times a day across financial centres such as New York, Boston, London and Hong Kong. Meetings range from packed group lunches to one-on-one sessions with the handful of investors expected to anchor the deal.
While the executives are presenting, the underwriting bank is building a book, meaning a running record of how many shares each investor would buy and at what price. The road show and the book build run in parallel, and feedback from the meetings is what moves the indicative price range up or down.
It matters commercially because the gap between a well received road show and a flat one can be tens of millions of dollars of proceeds. It also shapes the shareholder register, since management use the meetings to steer allocations towards long-term holders rather than investors likely to sell in the first week.
Legally the road show is tightly constrained. Executives may only discuss information already contained in the prospectus, which is why some answers sound stilted, and straying beyond the document risks a delayed or withdrawn offering.
Road shows are no longer confined to flotations. Companies run them for bond issues and secondary share sales, and many now hold non-deal road shows, which are investor meetings with nothing being sold, purely to keep existing holders engaged.
In practice
Real-world examples.
Example
A medical devices company runs a two week road show before its flotation and finds that every investor asks the same question about reimbursement policy. Management rewrites that section of the presentation after day three, and the remaining meetings convert far more strongly into orders.
Example
A utility issuing $500,000,000 of ten year bonds holds a three day fixed income road show, meeting insurers and pension funds who buy long-dated paper. The feedback lets the bank tighten the yield by 15 basis points, saving the utility $750,000 of interest a year.
Example
A listed retailer with a share price it considers undervalued arranges a non-deal road show in three cities. Nothing is being sold, but two of the funds it meets build positions over the following quarter after understanding the store refit programme.
Think of it
“Road show is presenting to investors before an offering-marketing the deal.
Formula
Calculation
There is no standard formula, but the number the bankers watch is order book coverage: coverage = shares demanded in the book / shares offered.
A software company offers 10,000,000 shares with an indicative range of $18 to $21. By the end of a nine day road show the book holds orders for 45,000,000 shares, so coverage is 45,000,000 / 10,000,000 = 4.5 times.
That level of demand lets the underwriters price at the top of the range. At $21 the company raises 10,000,000 x $21 = $210,000,000 gross, and after a 6% underwriting fee of $12,600,000 it nets $197,400,000. Pricing at the $19.50 midpoint would have raised $195,000,000 gross, so the extra demand the road show generated was worth $15,000,000 before fees.Case study
Seen in the real world.
The following is an illustrative and clearly fictional story. Kestrel Analytics, an invented data business, planned a flotation and set an indicative range of $22 to $26 a share. Its chief executive was an engineer by background who disliked what he called performing for investors, and he pushed to keep the road show to four days.
Halfway through, the bookrunners reported that funds liked the technology but could not tell recurring revenue from one-off implementation fees. The fictional finance director rebuilt the revenue slide overnight, splitting the two clearly, and the tone of subsequent meetings changed immediately.
Kestrel extended the road show by three days to revisit investors who had passed. The book finished 3.2 times covered and the shares priced at $25, roughly $30,000,000 more than the midpoint would have delivered on the same 10,000,000 share offering.
Watch out
Common mistakes.
- Treating the road show as a marketing exercise to be delegated, when investors are largely assessing the credibility of the management team in person.
- Saying something in a meeting that is not in the prospectus, which can force a supplementary filing or delay the offering.
- Optimising purely for the highest possible price and ending up with a register of short-term buyers who exit within weeks, leaving the shares to drift below issue price.
Questions
People also ask.
How long does a typical road show last?
Usually one to two weeks for an equity offering and two to four days for a bond deal, though virtual meetings have shortened many schedules.
Who attends from the company?
Normally the chief executive and chief financial officer, sometimes joined by a divisional head for specialist questions, accompanied by bankers from the underwriting syndicate.
Does a road show guarantee the deal gets done?
No, if demand is weak the offering can be repriced, shrunk or pulled entirely, which happens more often than the headlines suggest.
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