The revolution in web-based trading is sweeping through the IPO market.
Now electronic investment banks are lining up potential deals in anticipation of new Securities and Exchange Commission guidelines for online roadshows.
These roadshows are the latest foray by firms serving individual investors who seek the advantages of institutions.
The dog and pony spectaculars also promise institutional investors an opportunity to see management presentations they might have missed because of either time or geographic constraints.
The potential online audience is relatively substantial. An average of 10 percent more investors view online presentations than conventional presentations, according to David Baumann, chief executive of the Investor Broadcast Network, a provider of online presentations.
Companies planning public stock offerings and their underwriters offer encouragement. "It's good to be moving in this direction," said Cindi Buckwalter, senior managing director of corporate finance at Whale Securities Co. The firm is "strongly considering" an online roadshow for an upcoming deal. "The democracy of the Internet is allowing small investors to access this information," Buckwalter said. "It's time for that to happen."
Final Frontier
Internet investment bank, E*Offering provides a perfect example of an electronic roadshow. The bank's recent debut, available to the general public, was produced by NetRoadshow for Xcare.net Inc. (Nasdaq: XCAR), an e-commerce service provider for healthcare businesses that went public last month. NetRoadshow is owned by Yahoo! (Nasdaq:YHOO).
"This was the final frontier, a management presentation to the retail investor public," said Brad Hammond, president of NetRoadshow. "We have a medium that can support thousands and thousands of simultaneous investors."
The SEC has been allowing online presentations since 1997. But these are meant only for investment banks and their hand-picked clients. Access is gained via passwords. With the Xcare.net presentation, however, online presentations have crossed over the line to the general investing public.
Despite the breakthrough, one hurdle remains. Although it is not standing in the way, the SEC has yet to deliver ground rules for online roadshows. Providers of the service are hoping that a SEC rule will be issued this month.
The full-scale introduction of online roadshows has been in the pipeline since November when Charles Schwab & Co. filed a no-action request. The San Francisco-based discount brokerage giant asked the commission for permission to transmit online roadshows to its Signature Services retail customers. These customers were participants in IPO deals available via Schwab. Although the SEC had originally granted the request under certain conditions (and pending a final ruling), the agency later back-tracked. The guidelines expected this month should help clear the waters.
Simplicity
Launching an electronic roadshow is relatively simple. Companies can have it produced by one of several outfits. The producing company records the presentation, or Web-casts' the physical roadshow presentations for investors unable to physically attend. If the schedule does not suit an investor, the investor can still view the recorded presentation, archived on the company Web site, at a later time. "The fact that you can see it at three in the morning when you have time is a big bonus," Buckwalter said.
Convenience, efficiency and basic fairness are among the reasons in support of online roadshows. Executives dread the dawn-to-dusk demands of conventional roadshows.
With the possibility of tuning into a Web-cast or seeing an Internet-archived presentation, "[investors] can hear the story, at least," said Michael Janney, chief financial officer of eMerge Interactive Inc. (Nasdaq: EMRG). The company priced its IPO on Feb. 3.
Audience Measure
While there are no official projections on the potential online audience, there are clues in individual success stories. Consider the example of XCare. Although it could not be publicized because of quiet period regulations, XCare's online presentation was available for viewing on Jan. 21, the same day the prospectuses were available. Since then, the presentation has been downloaded over 70,000 times.
To be sure, there are reasons to be concerned. For starters, a roadshow routinely puts much less emphasis on risk factors, observers say. "Live roadshow presentations are usually in front of institutional investors that are familiar with an industry," said Brad Hammond of NetRoadshow. (Hammond said that the online presentation was fair to the import of the prospectus.)
Meanwhile, the SEC worries that some investors do not take enough time to read a prospectus, leaving them vulnerable to poorly-informed investment decisions. Companies, meanwhile, worry that an investor who made a less-than-informed decision based only on a presentation could come back to file a lawsuit.
If an online presentation is open to everyone, observers argue, steps must be taken to limit the privileges associated with conventional presentations. Risks must be enumerated and no material information can be excluded. Another option is that individual investors who want to view an online presentation must show proof, or at least acknowledge, that they've read a company's prospectus. "Retail investors should have access, but they have to be qualified," Buckwalter warned.
Still, market pros are optimistic that the SEC will issue a ruling they can embrace. "What we're doing is consistent with everything that the SEC is looking for," Hammond said. "That's full disclosure."
Bauman of Investor Broadcast, describing Levitt as a "proponent and champion of individual retail investors," predicts that the SEC chairman will push the issue "aggressively." Tom Flavin, vice president of Direct Stock Market.com, which also provides online presentations, asserted that the SEC will not stand in the way of online roadshows.
End of Real Shows
If online roadshows are fully approved by the SEC, the question then is whether they will eventually replace the offline roadshow. Not a chance, say some experts.
"People like to meet managers and ask questions. You need to have an interactive capability," said Joe Hammer, capital markets and syndicate manager at Boston-based Adams Harkness & Hill, which lead-managed eMerge Interactive's IPO. "There's something positive about being in the same room with management," Flavin said. "You can meet and greet and build a relationship."
Omar Sacirby is associate editor of The IPO Reporter, a sister publication of Traders Magazine