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Following the publication of the Prospectus, the public offer period begins and, if a Private Placement is also being held, the order book opens to collect orders from the Institutional Investors. This normally takes between 2 and 3 weeks.
3.1.1.3.1. Management roadshow
The Management roadshow refers to a series of sales presentations pitched by the Company’s Management together with the Financial Advisor(s) and Placement Financial Intermediary(ies) to a wide range of potential Institutional Investors, allowing them to have a closer contact with the Company and, ultimately, to lead them to participate in the IPO.
Roadshow Events
Roadshow events are key to the level of participation in an IPO and are held across different locations, at a national and international level, considering the investors they aim to target.
The goal is to present to investors the Company’s Management and their strategic vision, the Company’s strengths and growth perspectives, and address concerns expressed by investors and analysts during the previous stages.
Topics usually addressed on the roadshow events are the following:
Traditionally roadshows are held in a format of live meetings that take place in physical venues, but in the last years it is becoming more and more common to hold part of the roadshow presentations online through online videos and podcasts. At the end of each session there is always a Q&A session where investors’ representatives have the freedom to ask general questions about the Company and the IPO process.
3.1.1.3.2. Pricing
3.1.1.3.2.1. COMPANY valuation
Different techniques are used to determine the fair value of the Company’s equity. The main methodologies for valuing the Company are the income approach and the market approach.
The income approach determines the value of the Company based on future cash-flows that the business is expected to generate, discounted at a discount rate which represents the opportunity cost of capital, whether using a dividend discount model or a discounted cash flow model.
The market approach values the Company based on trading multiples derived from publicly traded companies that are comparable to the Company – Guideline Public Company Valuation Method*. Ideally, the guideline comparable public companies selected for analysis compete in the same industry (national or abroad) but when such publicly-traded companies do not exist (or when only a small number of them exist), other companies with similar underlying characteristics. Exact comparability is not required under this method of valuation, although closer comparables are preferred.
*The Guideline Public Company Valuation Method consists on identifying comparable public companies (peers), adjusting the guideline public company multiples for differences in the size and risk of these companies compared to the Company, and then applying the adjusted pricing multiples from the representative companies.
No model is more reliable than the other and in some cases the valuation can be performed by considering a combination of different models. Companies are advised to indicate the valuation method(s) used in the Prospectus.
On the basis of this valuation, and also taking into account the market sentiment that was collected in the early looking meetings with investors (and equity research analysts), a fixed price or price range will be determined.
The price range sometimes reflects a discount to the closing price of the shares on the first days of market trading.
3.1.1.3.2.2. Price determination
There are two main ways to define the Offer price, namely (i) Fixed Price Method; and (ii) Book Building Method.
If the Fixed Price method is applied, the number of shares to be offered and the Offer price is set out in the Prospectus and thus is known in advance by all agents.
The Book Building method is a price discovery mechanism, in which Institutional Investors (only) are presented with a range of acceptable prices and invited by the Placement Financial Intermediary(ies) to bid for the acquisition of a certain number of shares and state at the price they are willing to pay. The Company considers this information, notably the aggregating of demand as well as the weighted average of the prices proposed, to decide on the final price. The Book Building method is used at Private Placements, in which the level of demand and allocation of shares is discretionary.
When the IPO comprises two separate offers, although interconnected between them: a Public Offer and a Private Placement, the most common practice, in Portugal and in other jurisdictions, is to set a price range for the Public Offer, where investors do not participate in the price-setting process and give orders of acceptance considering that the final offer price may be set in the highest range. Meanwhile, the Book Building method is used for the Private Placement with Institutional Investors. The final price for both is thus obtained through the book building method. The allocation of shares to Institutional Investors in a public offer), if investors’ demand exceeds the quantity of shares being offered, shares will be allocated on a pro-rata basis considering the orders transmitted by the Investors under that offer.
The principle of fair and equal treatment of investors applies to all offers, i.e. final offer price must be the same for all investors of the same class.
3.1.1.3.3. Placement of the Public Offering
3.1.1.3.3.1. Investors targeted by the Offering
The Prospectus must include a clear definition of the breakdown of the offer between investor types.
It is common that the Offering comprises a Public Offering and a Private Placement directed to Institutional Investors, which allows:
Additionally, in order to promote employee ownership and streamlined incentives between managers, shareholders and stakeholders, the Company may grant their employees, in parallel with the IPO process, the opportunity to subscribe for Company shares.
When no distinction is made between different categories of investors and/or no allotment of shares is reserved for a specific category of investors in a Public Offering, the Company must ensure that the Public Offering is effectively open to all investors on the same terms and conditions without distinction or discrimination and the shares are allocated in an equitable manner.
3.1.1.3.3.2. Offering Period
The length of the period is very flexible and varies greatly from one transaction to another.
In many IPOs, the offering period ranges from around 2 to 3 weeks and starts on the day following the publication of the Prospectus (or a few days later). Under certain conditions, depending on the investors’ demand and other market conditions, the term of the offer may be extended, subject to CMVM’s authorization.
3.1.1.3.3.3. Acceptance of the Offer
Investors’ acceptance of the public offering is done by an order addressed to any financial intermediary legally authorized to render the service of the reception, transmission or execution of orders on third party’s behalf.
Such acceptance orders may be revoked up to five days before the end of the offer period, or within a shorter timeframe, whenever stated in the Prospectus.
Opening of the order book
When a Private Placement offer targeted to Institutional Investors is being carried out (together or not with a Public Offer) and the Book Building method is used for the IPO price definition, the Placement Financial Intermediary(ies) opens the order book and starts receiving preliminary orders from the Institutional Investors. These orders will include the number of shares they wish to acquire and the price they are willing to pay within the pre-defined range.
3.1.1.3.3.4. Revision of the Offer
Until two days before the end of the public offer period and subject to the CMVM’s authorisation, the offeror may review the terms and conditions of the offer, provided they are not less favourable, in global terms, to investors.
What are the effects of the offer revision?
3.1.1.3.3.5. Modification, revocation and Withdrawal of the Offer
In case of unexpected and substantial change of circumstances, the offeror may modify or revoke the offer, subject to the CMVM’s authorisation.
Whenever the CMVM identifies that the offer contains any irreversible illegality or breach of regulation, it will order the offer’s withdrawal.
The revocation and the withdrawal of the offer are published by the CMVM, at the offeror’s expense, by the same means used to disclose the Prospectus.
The revocation and withdrawal of the offer determines the ineffectiveness of the offer (being returned or unlocked what has already been paid).
3.1.1.3.3.6. Offer Suspension
The CMVM will suspend the offer when any reparable illegality or violation of regulation is discovered. The defects that caused suspension need to be corrected in maximum 10 working days. Afterwards, if no correction is made, the CMVM will order the offer’s withdrawal.
If the offer is suspended, investors may withdraw their acceptance orders until the fifth day following the suspension.
General principles
The shares are allocated to (each class of) investors in accordance with the principle of fair and equal treatment of investors.
The Prospectus should contain information on how the shares will be allocated in the event of oversubscription. As a general rule, the allotment method in the Public Offer should be made on a pro-rata basis, but other methods may be chosen, subject to the CMVM’s approval.
Over-allotment option
An overallotment option may be provided in the placement agreement, allowing Placement Financial Intermediary(ies), on behalf of the Company and selling shareholders, to accept orders of acquisition of more shares than the initially set. This option generally lasts for 30 calendar days after the closing of the offer and may not exceed a number of shares representing 15% of the amount of the Public Offering. The possibility of increasing the size of the offer up must be disclosed to the CMVM and included in the Prospectus.
3.1.1.3.5. Assessment of Results, Settlement and Listing
At the end of the offer period, the final number of shares is allocated to the Public Offering and to the Private Placement, if the offering comprises both.
On the following day, the results of the Public Offering are assessed, by a financial intermediary or by the market operator.
The Company must register the share capital increase with the commercial registry office, a formality necessary for the settlement of the offer.
The settlement occurs with the payment to the Company (and selling shareholders if applicable) of the proceeds of the offering vs. the delivery of shares to investors (made through the credit of their shares accounts by the Financial Intermediaries through which the subscription/acquisition orders were processed).
Only after the settlement, the shares will be effectively admitted to trading on the stock market.
