j. What is a roadshow? What is book-building?
Randy’s, a family-owned restaurant chain operating in Alabama, has grown to the point that expansion throughout the entire Southeast is feasible. The proposed expansion would require the firm to raise about $18.3 million in new capital. Because Randy’s currently has a debt ratio of 50% and because family members already have all their personal wealth invested in the company, the family would like to sell common stock to the public to raise the $18.3 million. However, the family wants to retain voting control. You have been asked to brief family members on the issues involved by answering the following questions:
Roadshow is a set of presentations related to the issue of new securities prepared by the company's management or the underwriter to influence the potential investors to buy the securities, after the registration of securities by SEC but before the final public offer.
Book building is a process under which an underwriter, hired by the issuer company invites the potential investors to bid for the number of securities and the price at which they want to purchase those securities. After collecting all the bids, the underwriter analyzes the demand of securities and determines the price at which the final public offer should be made.
Roadshow is the set of presentations prepared by the underwriter or the company before the final public offer of securities to the general public in order to attract the investors to apply for securities a company is going to issue.
Book building is a process used by the underwriter to determine the final price of securities to be issued by inviting the investors to bid for the number and price of securities they are willing to pay.