equity markets and alternative investments teaching...
TRANSCRIPT
Equity Markets and Alternative Investments Teaching Program 2016-2017 Week 2 – February 21, 2017
IPO: General Overview and Process
Marco Morelli – Chief Executive Officer Banca Monte dei Paschi di Siena SpA - Italy
What is an Initial Public Offering (IPO)?
Initial Public Offerings
1
Overview
What?
Why?
Primary proceeds – new cash raised for the company. Usually for growth or to delever. Takes priority at IPO
Secondary proceeds – opportunity for existing shareholders to sell and monetise their investment
Increased profile for the company and stamp of “quality”
Provides acquisition currency
Uses listed shares to motivate management
Changing a company’s ownership base from private to more broad public ownership
Listing a company in a stock market
Primary market activity
Who?
Initial Public Offerings Primary vs. Secondary Sales
Secondary Primary
New shares sold by the company to new investors
Used for growth or to delever
Sale of new shares increases “market capitalization”
Affects post money P/E and EPS
Takes priority at IPO
Existing shares sold by current shareholder(s) to other investors
Used to liquidate some or all of a shareholder(s)’ holding
Used to ensure a suitable free float at IPO
Sale of existing shares has no impact on multiples or market capitalization
Stamp duty may be payable
Often a focus on stakes sold by Management (e.g. signaling effect)
2
Initial Public Offerings
3
The Result of the Interaction with Multiple Advisors
IPOs
Legal
Global Coordinator
Financial
Accounting
Advisors Team Involved
ECM
Investment Banking
Corporate Banking
Sales & Trading
Research
Chinese Wall
Who Buys IPOs and Why? Key Players, Investment Criteria and Portfolio Allocation Strategies
Selected Clusters of Potential Investors in IPOs
Long Only Investors
Sovereign Wealth Funds
Retail Investors
Hedge Funds
Investors Targeted by the Placing
Bank
1
3
4 2
Key Considerations
Diversified universe of investors look into / buy IPOs, i.e. different
investment drivers exist
Long onlys: typically have longer-term approach, seeking total return
supported by fundamental elements
Within long-only institutions different portfolios and
approaches often exist: Growth, GARP (“Growth at Reasonable
Price”), Yield, geographic focus etc.
ETFs are index-based investment products that allow investors
to buy or sell shares of entire portfolios of stock in a single
security
Hedge Funds: are typically (although not always) more opportunistic,
focusing on shorter-term price swings
Therefore – with exceptions of course – in IPOs they tend to
“jump-in hot deals” once the offer is well covered; and to sell
out on the back of spikes
SWFs: are usually very long-term investors, but normally focus only
on IPOs of very large sizes, as their portfolios are massive, and they
have strict requirements as per the expected aftermarket liquidity of
the shares
Retail: typically less sophisticated. Investment decisions are mainly
driven by dividend yield and brand visibility of company going public
1
2
3
4
Asset allocation strategy within institutions and single sub-
portfolios typically a function of overall objectives. For ex.
Aggressive vs. defensive stance
Need for regular dividend yield (for ex. pension funds)
De-correlation from broader market (hedge funds)
Macro bets
4
How is an IPO Executed?
Initial Public Offerings
5
Standard Milestones
Syndicate Selection
Preparation Analyst
Presentation & Research
Investor Education
Roadshow Pricing,
Allocation, Settlement
Company to select bank/s which will compose the syndicate
Due Diligence, Prospectus, distribution etc.
Company to brief Research Analysts Research Analysts (public side)
prepare and publish their report
Research Analysts meet investors globally to market the investment proposition of the Company
Management to embark in targeted global roadshow
Set final price range, agree on allocations and stock starts trading
Syndicate
6
RFP, Selection Process and Key Roles ECM
Involvement from Investment Bank
Becoming Part of a Syndicate Key Qualifications
Global Syndicate
Complementary Distribution
Strengths
Resource Commitment
Initial and Ongoing Research
Issuer Relationship
Typically banks receive a Request for Proposal (RfP) and have to
subsequently present to Company and management (“Beauty
Parade”)
Banks to provide commitment to produce research, make a market in
the stock and declaration of no conflicts
Increasingly often, Company and its shareholders are being advised
by Advisors during the process of syndicate selection
Typical Syndicate Composition
Global Coordinator(s)
Lead process and marketing Manage whole syndicate Liaise with Company/Shareholders and
Advisers Overall responsibility for the transaction
Joint Bookrunner(s) Participate in marketing and bookbuilding
Lead Manager(s) No involvement in process and marketing Provide research coverage
IBK
Preparatory Phase
7
Overview ECM
Start work on detailed timetable
Initial considerations on offer structure (primary/secondary, distribution, free float etc.)
Review any and all public information on the Company, which can be a useful base for the prospectus (do full data dump of information)
Annual and interim reports and press releases
Public announcements
Company presentations
Any previous fixed income or equity disclosure documents
Start building financial model
Blob model
Client on-boarding
Discuss publicity restrictions including quiet period, participation in industry conferences, press releases, website content and press
interviews
Agree on key roles and responsibilities among banks, counsels, company, shareholders, advisors, auditors, public relation firm etc.
Initial considerations on marketing and key investor targets
IBK
Involvement from Investment Bank
Preparatory Phase
8
Due Diligence
Key Objectives
Ensures that all material information is fully disclosed in the prospectus, protecting all parties
Company, Directors, Officers and Advisors: forms the basis of defence against a case alleging lack of reasonable investigation or reasonable care
Due diligence defence: after conducting due diligence the Bank has reasonable grounds to believe that the disclosure in the offering circular is true and accurate and there are no material mistakes or omissions
Investors: access to all material information needed to make an investment decision
Establishes correct Company positioning
Key Components
Drafting and due diligence sessions with management, law firms, auditors and other key parties
Legal and documentary due diligence
Directors’ and Officers’ (D&O) questionnaires
KYC (“Know your client” procedures, required by law and differing country by country)
Bring down due diligence
Indemnities and reps & warranties in the Underwriting Agreement
Legal disclosure opinions (including 10b - 5)
Auditor’s review and comfort letters (including SAS72)
Areas of Focus
Business 1 Financial 2 Legal 3
Lead by: Bookrunners Lead by: Bookrunners Lead by: Legal Counsel
IBK
Involvement from Investment Bank
Preparatory Phase
9
Benchmarking Example (1/3) – Assuming listing in 2014
Revenue growth and EBITDA margin are example metrics which could be part of a benchmarking exercise of the IPO candidate vs. its key traded peers
Depending on sector, many other metrics may be employed (e.g. other margin/profitability measures, cash conversion, efficiency metrics – ROCE, ROA etc. – market share etc.)
Aim of exercise is to benchmark how the IPO candidate is positioned vs. key peers and, when coupled with trading comp valuation metrics, give an indication of where it should be valued at IPO and beyond
Avg: 15.2% Avg: 6.3% Avg: 1.9x Avg: 44.7%
Avg: 3.2% Avg: 5.2% Avg: 0.6x
Avg: 8.1% Avg: 6.3% Avg: 0.8x
Avg: 51.6%
Avg: 55.0%
Avg: 4.6% Avg: 5.7% Post IPO Pre IPO Post IPO
32.3%
18,1%
5,0% 5,3%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.8% 6,4% 6,4% 6,5%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
2.5% 2,0x
1,7x 1,4x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
66.6%
36,4% 37,6% 38,3%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
3.8% 4,3%
(0.0%)
4,7%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.0% 5,1% 5,2% 5,5%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
0.5% 0,9x
0,6x 0,3x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
52.6% 51,6% 52,2% 50,1%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
2.9%
12,7% 12.6%
4,1%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.3% 6,0% 6,7% 7,0%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
1.2x 0,9x 0,6x 0,4x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
76.3%
56,8% 44,8% 44,0%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
7.7%
1,7%
4,3% 4,9%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.5% 5,5% 5,9% 6,0%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
5.9x 6,2x
2,5x 2,2x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
50,0% 50,0%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
Comp 1
Growth Forecasts EBITA Margin Reported
Net Debt/EBITDA Dividend Payout
Comp 2
Comp 3
IPO Candidate
IBK
Involvement from Investment Bank
Preparatory Phase
10
Benchmarking Example (2/3) – Assuming listing in 2014
Leverage metrics of key traded peers, in addition to other recent similar-type IPOs (e.g. recent industrial corporate IPO but not necessarily in the same sector as the IPO candidate) will likely drive the optimal post-IPO leverage levels
Knowing the pre-IPO leverage and the optimal post-IPO leverage, you should be able to determine the required “primary” proceeds which the company would need to raise
Rating agency metrics may also be benchmarked in which case “Adjusted” metrics would be used including typical rating agency adjustments (e.g. operating leases, pensions etc.)
Comp 1
Growth Forecasts EBITA Margin Reported
Net Debt/EBITDA Dividend Payout
Comp 2
Comp 3
IPO Candidate
Avg: 15.2% Avg: 6.3% Avg: 1.9x Avg: 44.7%
Avg: 3.2% Avg: 5.2% Avg: 0.6x
Avg: 8.1% Avg: 6.3% Avg: 0.8x
Avg: 51.6%
Avg: 55.0%
Avg: 4.6% Avg: 5.7% Post IPO Pre IPO Post IPO
32.3%
18,1%
5,0% 5,3%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.8% 6,4% 6,4% 6,5%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
2.5% 2,0x
1,7x 1,4x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
66.6%
36,4% 37,6% 38,3%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
3.8% 4,3%
(0.0%)
4,7%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.0% 5,1% 5,2% 5,5%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
0.5% 0,9x
0,6x 0,3x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
52.6% 51,6% 52,2% 50,1%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
2.9%
12,7% 12.6%
4,1%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.3% 6,0% 6,7% 7,0%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
1.2x 0,9x 0,6x 0,4x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
76.3%
56,8% 44,8% 44,0%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
7.7%
1,7%
4,3% 4,9%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.5% 5,5% 5,9% 6,0%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
5.9x 6,2x
2,5x 2,2x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
50,0% 50,0%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
IBK
Involvement from Investment Bank
Preparatory Phase
11
Benchmarking Example (3/3) – Assuming listing in 2014
Dividend payout(1) of key peers can be used as a metric to determine the shareholder return policies of the IPO candidate upon IPO
Dividend yield(2) also often used as a secondary/tertiary valuation metric and in some instances can be a primary valuation tool (e.g. infrastructure companies)
Payout policy need to be determined well in advance of formal marketing of the IPO and must triangulate with the capital structure and leverage targets of the IPO candidate
Comp 1
Growth Forecasts EBITA Margin Reported
Net Debt/EBITDA Dividend Payout
Comp 2
Comp 3
IPO Candidate
Avg: 15.2% Avg: 6.3% Avg: 1.9x Avg: 44.7%
Avg: 3.2% Avg: 5.2% Avg: 0.6x
Avg: 8.1% Avg: 6.3% Avg: 0.8x
Avg: 51.6%
Avg: 55.0%
Avg: 4.6% Avg: 5.7% Post IPO Pre IPO Post IPO
32.3%
18,1%
5,0% 5,3%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.8% 6,4% 6,4% 6,5%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
2.5% 2,0x
1,7x 1,4x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
66.6%
36,4% 37,6% 38,3%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
3.8% 4,3%
(0.0%)
4,7%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.0% 5,1% 5,2% 5,5%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
0.5% 0,9x
0,6x 0,3x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
52.6% 51,6% 52,2% 50,1%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
2.9%
12,7% 12.6%
4,1%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.3% 6,0% 6,7% 7,0%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
1.2x 0,9x 0,6x 0,4x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
76.3%
56,8% 44,8% 44,0%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
7.7%
1,7%
4,3% 4,9%
0%
5%
10%
15%
20%
25%
2012A 2013A 2014E 2015E
5.5% 5,5% 5,9% 6,0%
0%
2%
4%
6%
8%
10%
2012A 2013A 2014E 2015E
5.9x 6,2x
2,5x 2,2x
0,0x
2,0x
4,0x
6,0x
8,0x
2012A 2013A 2014E 2015E
50,0% 50,0%
0%
20%
40%
60%
80%
100%
2012A 2013A 2014E 2015E
____________________ (1) Dividend payout calculated as Dividend Paid / Net Income. (2) Dividend yield calculated as DPS/Share Price represented as a %.
IBK
Involvement from Investment Bank
Preparatory Phase
12
Example IPO Valuation
Range determined through valuation exercise (trading comps, DCF etc.). Valuation methodologies depending on sector
Market generally expects a discount to be applied to a company’s theoretical value
In newly floating entities this discount should decrease as the IPO’d entity exhibits a strong track record of meeting targets/expectations
Primary proceeds = new shares issued by the company at IPO. Key driver of this is targeted post-IPO leverage
“Post money” refers to valuation after primary proceeds have been raised and represent the traded value of the company after the IPO is completed and new shares are issued
IBK
IPO Valuation
BASED ON FORWARD YEAR P / E MULTIPLE
P / E
(€ m) 15.0x 16.0x 17.0x 18.0x 19.0x
2015E Earnings 15.0 15.0 15.0 15.0 15.0
Fully-Distributed Equity Value 225.0 240.0 255.0 270.0 285.0
Less: 10.0% IPO Discount 22.5 24.0 25.5 27.0 28.5
Post-Money Equity Value 202.5 216.0 229.5 243.0 256.5
Less: Primary Proceeds 50.0 50.0 50.0 50.0 50.0
Pre-Money Equity Value 152.5 166.0 179.5 193.0 206.5
% Sold in IPO 25% 23% 22% 21% 19%
Plus: Net Debt / (Cash) Post-Money (20.0) (20.0) (20.0) (20.0) (20.0)
Enterprise Value 182.5 196.0 209.5 223.0 236.5
Implied Post-Money Multiples
EV / 2015E Revenue 1.8x 2.0x 2.1x 2.2x 2.4x
EV/ 2015E EBITDA 6.1x 6.5x 7.0x 7.4x 7.9x
Equity Value / 2015E Earnings 13.5x 14.4x 15.3x 16.2x 17.1x
Involvement from Investment Bank
2015E EBITDA 30.0
2015E Sales 100.0
Preparatory Phase
13
The Prospectus IBK
Prospectus Drafting
The prospectus is a legal and marketing document
Company’s counsel produces the initial draft of the prospectus; usually based on the most recent annual report or other security prospectus (if any)
Drafting sessions take place to develop the prospectus
First session focuses on the big picture (e.g. positioning and structural issues)
Business section is completed first, followed by risk factors and MD&A
Typical Content
Regulatory Review Process
The regulatory review process varies from country to country
The transaction timetable must reflect the appropriate approval timing
Usually an iterative process - an active dialogue with the regulator is encouraged
In most jurisdictions the Underwriters liaise with the regulator
In some countries the regulator requires a third party (usually an accounting firm) to opine on portions of the disclosure document
In some countries the lead Underwriter also performs the function of “Sponsor”, which attaches additional liabilities
The review process ends in a committee approval
Summary
Risk Factors Financial Position Prospects & procedure
Use of Proceeds Business Description Description of Offer
Selected Financial Data
Directors, Management and
Employees
Principal Shareholders/Selling
Shareholders
Dividend Policy
Principal Related Party Transactions (RTP)
Taxation
Underwriting
Long Form Working Capital Report
Involvement from Investment Bank
Involvement of Research in IPOs
14
Analyst Presentation IBK
Objective and Structure
The analyst presentation forms the basis for syndicate analysts’ valuation models and narratives
Opportunity for management to
Present the Company’s investment case
Make a positive first impression - management should come across as knowledgeable, professional and confident
The presentation can take a few hours depending on the complexity the business. Allow plenty of time for Q&A
Sample Q&A should be prepared. Management should be drilled to ensure they have answers to all sorts of questions
Typical Content
Useful Tips for Drafting the Analyst
Presentation
ECM Res.
Illustrative Structure
The contents of the analyst presentation must be materially consistent with the prospectus. Information that cannot be included in the prospectus must be left out of the analyst presentation
E.g. forecasts which cannot be verified and/or for which comfort cannot be provided by the auditors
Lawyers and bankers review the analyst presentation to ensure consistency
Identify key themes upfront and reinforce them throughout the presentation
Each slide should have a conclusion that reinforces the investment case
Focus on the growth aspects of the story
Provide all information, stats and background materials you want to see in the research note
Presenters should mirror the roadshow team
Key Investment Themes
Industry Overview
Company Description
Financials
Key Take-Aways
Q&A
Involvement from Investment Bank
Involvement of Research in IPOs
15
The Pre-Deal Research Report
The Pre-Deal Research Report
Deal related research is independent and subjective
The research is written using data from the analyst presentation, but also from other public sources at the analysts’ discretion
The research is aimed at the target investor audience and is intended to familiarise them with the Company and its prospects
It is purely an investor education document - not connected with the offering memorandum, it is independent of the Company and legally unconnected with the offering
Typical Content
Drafting of the Report
Res.
Review
The research provides the equity story underpinning the valuation. It may cover issues such as:
Growth story
Market presence
Strategy
Capital structure and dividend policy
Management and corporate governance
Sector themes
Once the analyst presentation has been held, the research analysts of the syndicate banks will start work preparing their research
Typically, 3–4 weeks should be budgeted for preparation of the first draft
Research analysts can and should stay in touch with the Company during the preparation of the draft research
This draft is submitted to underwriters’ counsel who will coordinate a process for checking factual accuracy in accordance with whatever principles have been set out in the research guidelines
The Company and counsel will conduct similar reviews and thereafter a second draft produced for sign-off. This proofing process generally requires 3-4 days
Involvement from Investment Bank
Investor Education
16
Sampling Investor Appetite
Key Objectives Structure
Determine who are the key investors to meet management during
the roadshow
Assess initial reaction to the selling story
Assess valuation issues
Identify additional investor concerns
Sales ECM Res.
Upon publication of research, syndicate analysts go on the road to
market their report
Analysts educate approximately 150 investors over the course of 2
weeks
All markets covered: UK, Europe, US and Canada depending on selling
restrictions
Spearheaded by deal captain/ dedicated sector specialist sales team
1
2
3
4
Pre-Deal Research Report
Generally c.30 pages long excluding charts
Distribution to c. 3,000 investors as per
our latest IPOs
Final report will include valuation range
Involvement from Investment Bank
Roadshow/Bookbuilding
17
Overview Sales ECM
Once the price range has been agreed and the prospectus has been issued, management embarks on a targeted and intensive global
roadshow of meetings with potential investors
Company will be on the road for c. 2 weeks meeting investors very much on a back-to-back basis in one-on-ones, group lunches etc.
The arrangement of roadshow meetings is done by the syndicate banks in coordination with the roadshow coordinator
ECM Syndicates desks for each bank will agree on the split of meetings
Sales teams will focus on filling the group lunches
Management will bring to each meeting a roadshow presentation, prepared by the syndicate banks
During roadshow, syndicate banks open the “book” and start collecting orders from investors (either directly through the syndicate
desk or indirectly through the sales team)
As the book of demand builds, this methodology provides maximum transparency of price sensitivity of demand prior to pricing
Books Open
Momentum Builds
Sales Force Daily Calls
Bids Flow In
Books Close
Bookbuilding
Ongoing Management Roadshow
Involvement from Investment Bank
Roadshow/Bookbuilding
18
Overview Sales ECM
A Typical Day During the Roadshow Indicative Schedule
Amsterdam
Zurich/Geneva
Frakfurt
London
Edinburgh
Paris
Milan Madrid
San Francisco
Chicago
Boston Toronto
New York
Roadshow – preparation and organisation is key to success
Great team effort among syndicate banks
Outline of main cities to be visited during a roadshow
List of target investors to book meetings
50-60 one-on-one meetings with high profile investors
4-5 group events to maximise reach
Breakfast Meeting
with Investors
Individual Breakfast
One-on-ones with Key Investors
(2 or 3+)
Lunch Meeting
with Investors
Individual Lunch
One-on-ones with Key Investors
(2 or 3+)
Dinner/Cocktail Meetings with
Investors
Individual Dinner
Travel to Next Destination
08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00
Involvement from Investment Bank
Pricing, Allocation and Settlement
19
Overview ECM
Pricing Allocation Closing and Settlement
S&T
An IPO is a price discovery process done via a book building exercise
Once the book of demand closes, the Bookrunners review the book in order to assess
Strength of demand
Price sensitivity
Investors allocation expectations
Likelihood of aftermarket buying/selling
Equity market trends
The Bookrunners suggest a price which they deem to maximise proceeds while being consistent with a favourable aftermarket performance
The decision on price rests with the Company
The Bookrunners aim to structure allocations as a tool to ensure a favourable aftermarket performance
Acting in both the Company’s and investors’ best interests
The allocations suggested by the Bookrunners reflect various underlying criteria, such as
Quality of institution
Timing of order
Size of order
History of long-term holding
The decision on allocations rests with the Company
A bring down due diligence call is held at closing prior to giving instructions to release the funds
Settlement is generally in “T+2”
Co-ordination of payment with the Company is key
The deal team needs to seek written payment instructions from the Company
Involvement from Investment Bank
Stabilisation
20
How the Greenshoe Works ECM S&T
Issue Size
Good Conditions
Poor Conditions
Mixed/Poor Conditions
At Placement Aftermarket Trading
Some stabilisation purchases necessary
Greenshoe partially exercised
Stabilisation purchases necessary
Greenshoe not exercised
Stabilisation purchases not necessary
Greenshoe exercised
Both Issue and Greenshoe are fully sold at issue price
100%
15%
115% 100% 100% - 115%
Involvement from Investment Bank
Appendix
Initial Public Offerings
21
Illustrative IPO Timetable ECM S&T
Preparation 3–4 Weeks 2 Weeks Investor Education 2 Weeks Book Building
2 Weeks of Management Roadshow
Analyst Presentation
Research Published
Settle and start trading
(T+2)
Greenshoe (Anytime
up to 30 days)
Research Vetting
Fix Price Range Price
Allocate
Mandate Letter
Publicity Guidelines
Research Guidelines
Draft Research Review
Preliminary Offering
Memorandum
Underwriting Agreement
Agreement among
Underwriters
Comfort Letter ECC
Syndicate Briefing
Management Briefing
Involvement from Investment Banking
Initial Public Offerings
22
Detailed IPO Timetable for Flawless Execution ECM S&T
4/5 Months from Kick-Off to Pricing
Define and approach potential INED candidates & draft shareholder agreement
Equity Story Positioning &
Valuation
Key Events
Sell-side Research
Offer Structure
Investor Communication
Documentation &
Accounting
Steering Committee
Governance
Prepare Materials for Early Stage
Investor Meetings
Develop & Validate Equity Story
Review Business Plan
Prepare Analyst Presentation Materials
Intention to Float
Research Report Writing Investor Education by
Research Analysts
Institutional Offer Structuring
Anchor Marketing
Management Roadshow
Preliminary Research Meetings
Develop Financial Model & Valuation
Month 2 Month 1 Month 4 Month 5
Determine Optimal Capital Structure
Accounting, Working Capital Report, Due Diligence and Prospectus Drafting
Review Business Plan
Month 3
Bookbuilding
Price Range
Go/ No Go Go/ No Go
1st Draft Prospectus Submission to Regulator
Listing Hearing
Pathfinder Prospectus
Final Prospectus
Pricing Go/ No Go
Early Stage Meetings
Analyst Presentation
Involvement from Investment Banking