“Nobody wants to go back”: Covid scuttles IPOs and debt roadshows

VTex was valued at $ 3.5 billion in a public listing last month after its executives and bankers courted investors in more than 50 meetings. Instead of traveling thousands of air miles and checking in at glitzy hotels, the Brazilian tech group’s marketing blitz relied on a less flashy solution: videoconferencing.

Roadshows, once a feature of debt and fundraising known for big lunches and hectic pace of meetings, taking place over several days and covering cities around the world, have been interrupted by the pandemic.

Debt and equity bankers at major financial companies say that after the coronavirus strike, their days of globetrotting in their quest to raise capital came to an abrupt end. Far from mourning the demise of physical roadshows, however, bankers, investors and even some business executives seem to be celebrating the new way of doing things.

It is generally faster and cheaper to do business online and via video call. And that means business executives spent less time stuck on planes and in traffic jams and more time spent with potential investors, like VTex did.

“This is something they could never have done before,” said Lise Buyer, who founded Class V Group almost 15 years ago to advise companies looking to go public, after moving to two decades as an investor, banker and business executive working on IPO. “To their credit, they’ve had more meetings than any company I’ve ever worked with. ”

The buyer was part of the team that went public with Google in 2004, when Sergey Brin and Larry Page rushed to shop for costumes to wear the day before the launch. She was also rushing through New York City in the 1990s with Scott Cook, co-founder of financial software maker Intuit, and was a bit late for a meeting despite skipping lunch.

“We lost him in Midtown Manhattan because he ran down the street to get a hot dog from a cart,” she said. But there is a serious point: “It’s all part of the time, expense and massive inefficiency of trying to visit people in multiple cities in a matter of days.

The typical IPO roadshow started early on a Monday morning. Senior management at a company would likely have traveled to New York City, assembling their bank’s sales staff at the company’s fundraising office to scour the field with investors. They would then go out and start contacting investors.

The next morning would start with breakfast, followed by three one-on-one meetings with top asset managers, followed by lunch, further one-on-one meetings and dinner . The meetings would likely take place at the investor’s offices and then the banks would have big lunches at high-end hotels. Two years ago, Uber picked the Mandarin Oriental in New York City to host its IPO lunch, while rival Lyft picked the St Regis.

New York would be followed by Boston, then the West Coast. There could be stops in Denver to see Janus Capital or in Kansas to see American Century.

“Are you going or are you spending another day in New York?” »Said David Getzler, head of US stock markets at Société Générale. “These are the questions you are thinking about. “

Google co-founders Larry Page (center) and Sergey Brin rushed to shop for suits at the tech group’s 2004 IPO roadshow © NASDAQ via Getty

International roadshows may have started the previous Friday in London. But each, to some extent, had to be tailored to the timelines and goals of the company going public. As a result, planning, even on a smaller national tour, often ended up being done by specialist event management groups.

“You travel with the management team side by side,” said Chris Israelski at Imagination, a self-proclaimed experience design agency that has worked on more than 800 IPOs. “A logistics manager and a production manager then come in front of the team to make sure there are no issues with the hotels, or the cars, things like that. “

Then, when Facebook went public in 2012, a change happened, Israelski said. “It was the first time that there was a properly produced online roadshow, complementing what was done physically.”

Since then, many companies have invested in online presentations, but the value of large-scale production for companies like China Tencent Music Entertainment’s public debut in 2018 – with executive presentations in person in four cities around the world – didn’t come to a complete stop until March 2020.

“It has changed enormously. It was changing before the pandemic, but it accelerated, ”Israelski said. Its role has grown from global logistics to managing the online production of videos and testimonials, attracting a range of staff and corporate clients who historically would never have been part of a roadshow. “Sometimes it’s a one-day shoot, but it can take 18 days of shooting,” she said.

Billion Dollar Column Chart Showing Debt and Equity Fundraising Bank Charges Reach New Highs

For banks, virtual roadshows mean significant cost savings as companies bear more of the cost of production online. “It was expensive,” said Pierre Lapomme, head of US stock markets at BNP Paribas in New York, referring to in-person events.

Even a no-frills tour could easily run into the hundreds of thousands of dollars, according to bankers, paid for by the group of banks involved. “A single global plane bill could amount to nearly a million [dollars]Israelski said, alluding to the cost of more elaborate marketing efforts.

The increased use of virtual roadshows has also reduced the time required to get both equity and debt raising on the line. This year, an average of 11.8 days elapsed from the announcement of a loan agreement funding an LBO to the allocation of debt to investors, according to data from S&P Global Market Intelligence. This is the shortest period on record for data going back to 2010, when the average was closer to 21 days.

For large-scale debt financings, like many private equity-backed buyouts, senior management used to visit major cities for up to 10 days before returning to their desks to strike a deal. In 2016, when Argentina was making its debut in debt markets after defaulting more than a decade earlier, it dispatched two teams of policymakers to five cities in five days.

Some investors lamented at the time that the delegation sent to Boston and London represented the “B-team”, given that the then finance minister, Luis Caputo, had visited New York, Los Angeles. and Washington as part of the main delegation. , according to interviews and traveling communications seen by the Financial Times.

Former Tencent Music Entertainment chairman Tong Tao Sang observes the trading activity of the group’s shares as they debut on the New York Stock Exchange. © Mark Lennihan / AP

The shorter turnaround time allowed more deals to be closed, with records set in 2020 for debt and equity issuance. Capital markets bankers are set to set new records this year.

The faster pace also helps limit the risk of volatile markets derailing a fundraising effort. “You have more visibility on when you’re done, so you run less risk in the market,” said Lapomme.

But despite all the effectiveness, there is still a desire to rekindle some in-person meetings. “It’s still not perfect,” said Lapomme. “What you lack in a digital roadshow is body language.”

Indebted bankers and investors have emphasized lending money to particularly struggling companies, where you want to know the management team personally if you are going to hand over large sums of money to them.

Billion dollar column chart showing equity fundraising skyrocket despite lockdowns that interrupted roadshows

In the stock markets, an emotional element must also be taken into account. Regardless of the roadshow, the marching band ringing the opening bell at the New York Stock Exchange, celebrating a milestone with colleagues and supporters, is likely to stick around.

Israelski said some executives planned to return to the roadshows in person, but many industry participants expected them to be smaller and more focused to increase digital media production. “There will always be people who think they are more convincing in person and who think their business or product is best presented in person,” she said.

For investors, more gossip and low-profile details can also be gleaned at in-person events, including the number of high profile investors who have come to listen to the pitch. But is it worth the time – and expense – to get back to exactly where it was?

“I don’t think we’ll be going back,” Getzler said. “No one wants to go back. We have all adopted a new system.

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