In this edition of “On the road”, we interview Julian Macedo, the Founder and Managing Director of The ECM Team and former MD at Barclays, on the evolving IPO process in EMEA and the need for greater and earlier engagement between investors and companies...

OTR: Julian, you wrote in May 2017 about the “Early Look” or “Pilot Fishing” stages of an IPO, and how from a prospective investor’s point of view, earlier access to materials – such as the presentation and, potentially, draft Prospectus – would be beneficial. In practice, how likely is it that the company would have a well-formed investment case and advanced materials at this stage?
JM: The early look meetings typically take place 6-12 months prior to the target IPO date, and usually once the lead banks are appointed by the issuer. So the company’s equity story should be relatively well thought through. What investors can provide at this stage is genuine feedback on how they perceive the equity story and what changes if any they might appreciate. Often, this feedback is more insightful than at the time of the IPO.
By the time of pilot fishing, the equity story should be entirely set out. Investors don’t really appreciate being asked about major changes at this stage. Instead the conversation should be on market and sector conditions, and therefore possible participation/sentiment. Ideally, the company will already have met the investor in the early look meetings so the pilot fishing meeting will be an update on management’s progress towards targets.
In both cases, investors are however asking for a better framework for giving this feedback. They want more time with the presentation than just a 45 minute discussion after which the hard copy is taken away. Some will also appreciate a specific valuation framework and/or peers being proposed by the bankers, which makes it easier for the investors to formulate responses and challenges to the banker proposal.

OTR: Would a service like iRoadshow help with the “Early Look” or “Pilot Fishing” meetings?
JM: The investors would very much appreciate more time with the presentation before and after these pre IPO meetings. Based on what I have seen, iRoadshow gives investors secure and time limited access to the presentation materials on a compliance-friendly platform. The quality of discussion with investors should be better if investors have earlier access to the non-deal roadshow materials. What’s more, the issuer will then have page-level access information, so they understand exactly what the investor has spent time focusing on. Together, these changes mean the pre deal meeting moves away from being a basic introduction to the issuer’s business, to a specific and insightful discussion on what the investor liked and didn’t like.

OTR: We discussed the need for corporates to engage with potential investors and focus on the long-term story, how it stacks up and how will the company grow. How best can companies prepare and engage?
JM: New issuers should recognise that investors aren’t looking at them in a vacuum. Investors are judging the issuer against companies that have spent 20 years beating their numbers. IPO candidates should carry out an honest appraisal of the business plan and strategy, including how these tie into the historical track record. We guide issuers to be humble and factual about their achievements, and up front about areas that they don’t focus on and why.
Investors worry about a new issuer’s first months and years post listing. They recognise the transition to a listed company is not easy. While it is tempting to juice up the IPO equity story, management need to think carefully about how deliverable that will be, as they are on the hook for it.

OTR: Does the growth of ‘passive investors’ mean that the “investor universe” is evolving in a way which would make emerging markets IPOs more difficult?
JM: The world of equities is shrinking. The growth of passive investing, the cost pressures at the investment banks, and the changes in equity research from MIFID II, are making it harder for all but the very largest companies to reach investors.
In the EM world, I was at the LSE’s CIS and CEE capital markets conference in March. It was striking how many speakers said actively listening to investors is increasingly important for them.
One issuer preparing for an IPO said “It’s important to have an IR department. We have been investing in roadshows for two years already, before our IPO.” Even five years ago, this would have been extremely unusual to find. And a recent issuer said “We wished we had listened harder to investors and research analysts before, on what information and data they required on top of the regulatory disclosure”.

OTR: We discussed that “The IPO is not an end in itself”. What one piece of advice would you give companies exploring an IPO?
JM: The IPO is one of the most important strategic steps a company can take in its growth. It is importantly a transition to a new environment, one that management can be very unprepared for. We spend a lot of time in our work with issuers preparing, not for the IPO – but for becoming a listed company and servicing all the new public market stakeholders in the business.
After all, as a recent issuer said at the 2015 LSE IPO conference “We only realised after the IPO that we spent all this time flirting with the bankers, but we married the research analysts”!