Pilot Fishing in IPOs: Understanding the Market Buzz Before the Launch

Adam Hayes, Ph.D., CFA, combines over 15 years of Wall Street experience as a derivatives trader with deep expertise in economics and behavioral finance. Holding advanced degrees from The New School for Social Research and the University of Wisconsin-Madison, Adam also teaches economic sociology and financial studies at Hebrew University in Jerusalem.

What is Pilot Fishing?

Pilot fishing is a preliminary marketing technique used primarily in the U.K. where companies gauge investor appetite for a potential initial public offering (IPO). This informal approach helps companies assess how their stock or bond issuance might be received before officially entering the market.

Key Insights

• Primarily a U.K. practice, pilot fishing enables companies to test demand for a new securities offering.
• It provides an early, informal snapshot of investor interest and potential pricing dynamics.
• Investment bankers often discourage pilot fishing as it may interfere with their advisory role in pricing and marketing IPOs.

How Pilot Fishing Works

For companies considering going public, pilot fishing offers valuable feedback from sophisticated investors, helping to determine optimal timing and pricing. Underwriters can identify committed investors and refine price strategies, while investors gain early access to management for thorough valuation. However, critics argue that pilot fishing might give some investors disproportionate influence over IPO pricing.

Although common in the U.K. and parts of Europe, formal pilot fishing is restricted in the U.S. due to SEC regulations governing IPO processes. Nevertheless, some underwriters may conduct informal discussions with select institutional investors that resemble pilot fishing.

The Pilot Fishing Process Explained

Pilot fishing usually occurs during the prospectus drafting phase, alongside presentations to underwriters’ independent research analysts. Since details are still being finalized, issuers must carefully manage their communications.

Often, pilot fishing coincides with distributing a "red herring" prospectus—a preliminary filing with the SEC outlining company operations and prospects but lacking final pricing and share numbers. The red herring’s name comes from the bold red disclaimer on its cover, indicating the registration statement is filed but not yet effective.

Financial projections are generally excluded from pilot fishing materials. A limited group of investors is invited to confidential sessions under nondisclosure agreements. After these meetings, underwriters and issuers synthesize feedback to finalize preparations for the public offering.

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