- PwC survey of 150 LPs reveals passion for IPO research
- LPs step up pre-IPO meetings with companies
- Company executives need realistic list of comparable businesses
A majority of institutional investors are seeking more direct information about companies planning to issue common stock.
To do this, portfolio companies and other private businesses that are considering going public increasingly are holding test-the-waters meetings with groups of 10 to 20 investors, according to a new study by PwC.
Seventy-two percent of respondents in the study said they rely more on these meetings, compared with 65 percent that rely on roadshows, for their IPO decision-making, the study said.
“It’s a remarkable shift during the past several years,” according to the study, authored by Daniel Klausner, managing director at PwC.
“Management is now more likely to see prospective institutional investors before the company files the S-1 registration statement than after. It’s important that executive management be highly prepared around their equity story before meeting with investors for these ‘testing the waters.’”
More than 90 percent of respondents said they meet with companies before a traditional IPO road show. Partly driving this are changes in disclosure rules contained in the U.S. JOBS Act, which went into effect in recent years.
Overall, PwC surveyed 150 individual LPs in 2016 that had invested in at least one IPO in the previous year.
The survey showed that mutual funds, insurers, pensions, banks, hedge funds, endowments and others crave more direct information than ever on companies planning to issue common.
More than two-thirds of the group said they typically invest at least $100 million a year in IPOs. Sponsor-backed IPOs account for about 30 percent of all IPOs. Venture-capital-backed IPOs comprised about 30 percent of all IPOs.
With an eye on advising executives of portfolio companies and other IPO contenders on the mindset of their prospective equity owners, the study concludes that institutional investors have more data at their fingertips on startups and other enterprises.
Previously, many investors didn’t get a close look until an IPO roadshow that took place shortly before the company began trading.
Compelling narrative, clear comps
Executives need to tell their company’s story in a compelling way, with an emphasis on the predictability of the business, Neil Dhar, PwC deals partner, said. Institutional investors also need to see a fully vetted list of comparable businesses in the market on which to base valuations, he said.
Overall, more research and modeling are being done today on company, sector and market trends than ever before, the study said.
Among institutions, hedge-fund managers have been the fastest growing contingent in the IPO market, participating in 22 percent of the deals in 2015, up from 16 percent in 2013.
Traditional investment managers like mutual-fund managers comprised 46 percent of the IPO buyer market, compared with 53 percent in 2013.
Action Item: PwC study: http://bit.ly/1PjBWoF
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