Investor Roadshows and the Role of In-House Counsel

Roadshows play an essential role in a company’s capital raising efforts. It is an opportunity for the company’s management team to pitch the company to potential investors. A well-run roadshow presentation can generate significant investor interest in an offering of the company’s securities. On the other hand, a poorly run roadshow can dissuade potential investors and create skepticism about the management’s team ability to successfully execute the company’s business strategy.

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The company’s legal counsel plays a critical role in reviewing the content of roadshow presentations. Since roadshow presentations are made to pitch securities offerings, they are subject to federal securities laws. The company’s lawyers should advise the management team on the appropriate timing of the securities offering in order to avoid gun-jumping violations. In-house counsel should also carefully review the contents of the roadshow presentation to prevent the company from making material misstatements to investors.

Overview of the Investor Road Show

Roadshows are formally defined by Rule 433 under the Securities Act of 1933 as a presentation by the company’s management team that includes a discussion of the company and the company’s securities offering. The investors being pitched typically include institutional investors, brokerage firms, and asset managers.

Roadshows can be used for a wide variety of securities offerings including:

  • offerings of equity securities
  • offerings of debt securities
  • offerings of convertible securities

Securities offering that are registered with the Securities and Exchange Commission (SEC) as well as unregistered offerings can involve a roadshow. Registered offerings involve the filing of a registration statement with the SEC, which then undergoes extensive review and rounds of SEC comment letters. Examples of registered offerings include initial public offerings (IPOs) and follow-on offerings. The primary document involved in unregistered offerings is called the offering memorandum. This document is not subject to SEC review. Examples of unregistered offerings include Rule 144 to qualified institutional buyers (QIBs) and Regulation S offerings to non-U.S. buyers.

Content of Roadshow Presentations

The length of a roadshow can depend on the investors’ level of preexisting familiarity with the company. For well-known, publicly trading companies, the roadshow is typically shorter given that investors are likely to already be quite familiar with the company’s business model and performance.

Roadshows typically contain a description of the company’s securities being offered to investors, the strategic reasons behind why the company is pursuing the securities offerings, and an overview of the company’s operating performance and outlook.

While roadshows have traditionally been conducted via in-person meetings, roadshows can also be conducted by phone or by webcast. A PowerPoint slide deck is typically used by management to convey information to the audience.

Counsel’s Review of the Roadshow Presentation

The company’s in-house counsel should advise the management team as to the appropriate timing and contents of roadshow presentation in order to prevent violations of federal securities laws.

In a registered offering, a roadshow can only begin after a registration statement has been submitted to the SEC. In an unregistered offering, roadshows should take place after a preliminary offering memorandum has been circulated to potential investors.

In terms of contents, counsel should consider Regulation Fair Disclosure, or Regulation FD, in evaluating a roadshow presentation. Regulation FD was adopted in 2000 in order to prevent companies from selectively disclosing important information only to certain investment professionals about the company or the securities being offered. If material, non-public information (MNPI) is disclosed to select investors in circumstances where it is reasonably foreseeable that they will trade on the basis of this MNPI, the company is required under Regulation FD to also disclose this MNPI to the general public.

Counsel should also pay close attention to non-GAAP financial metrics that are presented in the roadshow. Non-GAAP measures refer to financial metrics that are not prepared in accordance with Generally Accepted Accounting Principles (GAAP). GAAP measures have been adopted by the SEC. The company can face liability from investors alleging that the non-GAAP financial measures paint a misleading picture of the company’s financial performance. Regulation G, which was adopted by the SEC in connection with the Sarbanes-Oxley Act of 2002, sets forth the conditions for using non-GAAP measures.

Auditor Comfort Letters

In some instances, the auditors will be asked to provide a comfort letter in connection with a road show presentation. This commonly arises when the road show presents financial figures that were not included in the registration statement or offering memorandum provided to investors.

The comfort letter process involves collecting factual back-up from the company for the financial figures presented in the road show. The auditors can then “comfort” these figures in the comfort letter they will issue.

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