CREaM: The Campaign for Real Early Look Meetings
November 03, 2014
Equity capital markets (ECM) teams across the banking industry are just getting over the annual distraction of preparing their submissions for the IFR Awards, the industry gongs, which include categories such as “ECM House of the Year” and “Deal of the Year”. Heads of department will have had their best junior teams working furiously to cut and recut the numbers to ensure that their submissions present their firms in the best light. For 2014 the pace of activity will have ensured that the numbers will be higher, the lists longer and the competition fiercer for the top slots.
Fund managers’ diaries: bravery under fire
Whilst the bankers dust down their trophy cabinets in anticipation, I would propose a special award, perhaps for “bravery under fire”, for those who keep the diaries of portfolio managers. They, more than most, will have felt the full force of this year’s increased activity as they have been deluged with multiple requests for IPO meetings. Not just company roadshow meetings, mind you: analyst calls and meetings, the bizarrely titled “pilot fish” meetings before prospectuses are published, and – the focus of this blog – the “early look” meetings now seen as de rigueur for European IPOs.
The “early look” concept came about over the last six or seven years in response to a desire by fund managers for a better process to help them form an investment decision on IPO companies. Rather than be expected, they said, to make a decision on the basis of a research report, a prospectus and a brief meeting with management, let’s have a longer period of getting to know companies, even a year or more before IPO. Let’s see them deliver some of what they said they would. That way we get more comfortable with the business and better able to value the growth and the risk.
Too much of a good thing?
It didn’t take long for this practice to become the norm for IPOs, as bankers leapt on the idea as a means to get early feedback, build a “fan club” for companies and create leverage to drive up pricing. Indeed, why hold just one round of early meetings, why not two or even three? All the while the fund managers’ diary keepers stagger home every evening exhausted to lie still in a darkened room with a cold compress.
With apologies to the diary keepers, we at PwC Equity Advisory continue to favour the concept of early look meetings but we think that in some cases they have lost touch with their purpose and are not quite hitting the mark. The first issue is that sometimes these are simply being treated as another roadshow meeting – not the more open dialogue that investors had envisaged. The second is that the concept of taking investors “on the journey” is sometimes getting lost, with insufficient attention given to the progression between early look and the IPO itself. A final issue, in part driven by a “box ticking” approach by some advisors, is that banks feel under pressure to fill up early look schedules with investors who may have had to be dragged kicking and screaming to the meeting.
Perhaps, therefore, it is time for us to launch the Campaign for Real Early Look Meetings (CREaM). The campaign manifesto might include the following points:
- Thoughtful and well-prepared meetings. Rather than a few slides pulled together in haste by bankers at 3am, we’d advocate that issuers give thought as early as possible to the equity story, the KPIs, and the path to delivery. Let’s think more carefully about how companies tell their story.
- Consistency of approach. There may be good reasons why the story changes between early look and IPO but we’d view that as the exception rather than the rule. Let’s ensure that there is real consistency on strategy and what is being promised. Bringing forward some of the due diligence may help management teams sleep at night as they start giving information to investors.
- A sensible approach to meeting schedules. Let’s call time on cramming investor schedules and “calling in favours” purely for the sake of filling in a feedback spreadsheet. Half a dozen quality meetings are better than a dozen discussions with indifferent and reluctant fund managers.
- Honest feedback. Let’s ensure that there is transparency in the dialogue with the market. Banks should feel secure enough in their positions to deliver the bad news as well as the good – then issuers can deal with it. What doesn’t work is when banks “soft pedal” important feedback.
The Campaign for Real Early Look Meetings may not have the beer or the luxuriant facial foliage of the Campaign for Real Ale, but we think it has some real attractions in improving the IPO experience for issuers and investors. That, ultimately, should translate to better value all round. We’d drink to that.
What has been your experience of early look meetings? Do you recognise some of the issues we have identified? Does our manifesto go far enough? Share your thoughts in the comments box below or schedule a meeting if you’d like a confidential discussion about this or any aspect of IPOs.