Initial public offerings (IPOs) are one of the most important milestones for many companies. During the IPO process, analysts are required to conduct formal diligence of the market opportunity, the unmet need, your company’s solution and your prospects for long-term growth and business viability. This is typically initiated with companies hosting an Analyst Diligence meeting, then following that up with an Analyst Financial Diligence meeting – both with the entire group of analysts and their associates. There will be additional diligence calls with industry participants, as well as subsequent company hosted calls and meetings to review any outstanding items throughout the process.
In Part I of our series, we will do a deep dive into the Analyst Diligence meeting and what to expect, and next week in Part II, we explore the Financial Diligence meeting, bearing in mind that these are related to one another in the broader context of analyst relationship development and education.
Analyst Diligence Meeting
The Analyst Diligence meeting provides an opportunity to tell the story that is becoming solidified through drafting the S-1. It also provides a forum for you to showcase the depth of management with business leaders each presenting their respective sections. Analysts receive an in-depth overview of the company and begin shaping the way they think about the business as a public company.
What You Should Expect…This is a similar exercise to the Organizational Meeting, albeit with a much smaller group and a slightly different focus and will typically be scheduled for 3-4 hours.
- While the analysts will not ultimately be privy to as much detail as the Working Group, you will generally provide more information in diligence sessions while private than what you plan to share as a public company.
- Analyst teams will come to the meeting with varying degrees of understanding of the company – this is a chance to level set their knowledge base and educate the group on nuances of your sector and company.
- Don’t be surprised if the analysts ask a lot of questions, or if some stay relatively quiet. We find that this is a function of individual knowledge levels coming into the meeting, current bandwidth, politics among the group, and their specific focus areas. They will typically dig in more deeply over the following few weeks as they conduct industry diligence and create their models in advance of the IPO roadshow so that they are prepared to answer questions. Later – after the IPO has priced – they will work on their initiation reports and circle back with final questions as they arise.
What the Analysts Expect…The analysts use this time to get to know the broader company better, meet members of the management team beyond the CFO and CEO, and to get up to speed on current information.
- The analysts are starting to form the framework around how they will be thinking about your business as a public company and determining what the key metrics are that will demonstrate commercial success and execution of milestones and, ultimately, value creation. This will be crucial once you get to the Financial Diligence meeting (which will be several weeks after the Analyst Day), but it will be helpful to start laying the groundwork for these key performance indicators (KPIs) here.
- The analysts will also start to ascertain where potential challenges lie and where the investment community will find any weakness in your story. This is important, as the analysts will be talking to investors, so we want them armed with good information. And, we want their feedback on what we can communicate more clearly or with additional information.
Sample Analyst Diligence Meeting Agenda & Participants
- Introduction to the company – Chief Executive Officer
Overview, history and key accomplishments - Market overview – Chief Executive Officer
Competition - Product introduction – VP of Marketing or Product Development
Technology platform
Product pipeline - Commercial strategy – VP of Sales or Marketing
Market segmentation and strategy
Industry trends
Sales structure and growth - Clinical & regulatory – VP Clinical & Regulatory
Clinical trials and data
Clinical trials underway - Reimbursement codes and payment structure – VP Clinical & Regulatory
- Manufacturing and operations – VP of Operations or R&D
- Finance history – Chief Financial Officer
- Legal, IP Overview – General Counsel or Chief Financial Officer
- Wrap up; Q&A All
A Few Helpful Hints….
- Keep in mind this is an interactive process. Be prepared to have follow-up discussions with individual analysts as they conduct diligence and construct their models.
- As your business continues to evolve, you may be in a position where you want to provide a business update to the analyst group. It isn’t unusual for companies to schedule a follow up call late in the process with slides showing new information since the initial diligence meeting.
- Prepare a Q&A document and practice. The analysts will ask provocative questions, and you don’t want to be caught flat-footed or seemingly ill prepared. It’s OK if an answer is that you will circle back with them later, but know in advance that is the plan.
- Bear in mind that that the analysts are asking questions to better understand the business, they generally aren’t being critical. They are also pre-empting questions that the investment community will have, and it’s important that you maintain an open dialogue.
- The analyst teams will receive electronic copies of the deck in advance of both meetings. Nothing should be shared that you aren’t comfortable with them having access to once you are public, and you have the opportunity to redact certain slides that you plan to present.
- Analysts will likely use graphics from your materials in their initiation reports (we suggest they request permission before using any content from the Analyst Day materials to confirm any graphics used in their reports are current and up to date).
- The better educated they are on the story, the better the analyst reports will be and the more useful they can be to investors.
Moving to a Virtual Environment
COVID-19 has uprooted life in many ways, and many people are continuing to navigate work remotely. Hosting the analyst diligence meetings in a virtual environment has its benefits and its challenges. To start, in a virtual environment, you have the opportunity to leverage members of your executive leadership team that may have otherwise had travel constraints and show a deep bench and expertise across business areas. That said, there are higher risks of technical issues (i.e. failed video calls), a shift in dynamic due to the lack of in-person interactions, and supplemental materials might be limited by network speed. For example, videos generally do not work on a webcast. If there is a video you want the analysts to see, we suggest sending it separately.
Educating your analysts during your IPO process in a virtual environment can be a challenge at first, but planning and preparation go a long way in hosting a successful event.
Whether your Analyst Diligence meeting in person or virtual, we have extensive experience working with management teams through the IPO process, including preparation for the analyst diligence meeting. If you would like to discuss more about planning for an IPO, contact our team today.
Lynn Lewis, Founder & CEO and Kelly Gura, Analyst
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