Have you noticed that most of the terms relating to contacting potential investors to gauge their interest in possible securities offerings take their inspiration from terms related to the sea? We wonder why. Probably not an homage to Jacques Cousteau or Wes Anderson. In Europe and Asia, for some time, bankers have had greater flexibility to discuss potential offerings with investors in order to gauge their interest. This process often is referred to as pilot fishing. Wikipedia tells us that pilot fish are carnivorous fish that congregate around sharks and lead sharks to food, but rarely get eaten by sharks due to the erratic behavior of pilot fish when caught. This doesn't exactly make it obvious why bankers refer to the process as "pilot fishing." Perhaps a better explanation comes from the etymological origins of the name—which is the belief by early mariners that pilot fish would direct, or pilot, their ships to land. For quite a long time, given the prohibitions on communications prior to a securities offering, it was difficult for bankers in the United States to engage in these types of conversations with potential investors, without fear of having these activities considered impermissible gun-jumping. Of course, the JOBS Act significantly updates the regulatory framework governing offering related communications for emerging growth companies. Making it all the more important to understand the types of pre-offering communications that have been part of the bookbuilding process in Europe. Conducting preliminary investor inquiries, or "pre-soundings" (the reference to "soundings" is intuitively obvious), in Europe and Asia has yielded important information about valuation and has helped during volatile market conditions. Usually, following pilot fishing, book runners then identify anchor investors (again, what's with the nautical references). Even under our updated JOBS Act framework, it would be impermissible to obtain orders from key investors in advance of having a preliminary prospectus with a price range. However, we often do see financial sponsor types (QIBs) step up and participate in a private placement completed contemporaneously with the proposed IPO. It is interesting that just as the process for interacting with investors in the United States is becoming more fluid, the pre-sounding process in Europe and Asia (at least in relation to follow-ons) is becoming somewhat more constrained. Maybe the practices will coalesce at sea.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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