IPO Communications: Challenges and Opportunities

By

2014 is on target to become a banner year for IPOs.  According to IPO research firm Renaissance Capital, 117 IPOs have already priced in the U.S. this year – a near 60 percent increase over the same period one year ago.  On top of that, 176 IPOs have been filed, up nearly 94 percent over a year ago. Total proceeds raised through the IPOs currently stand at $23.7B, a 38 percent increase over 2013.

And just as it did a year ago, the U.S. healthcare industry has led the way with the most deals, followed by the technology and financial sectors.  Globally, IPOs are on a similar trajectory with 154 IPOs priced, up more than 67 percent over last year. Total global proceeds are over $65B, a 39 percent increase over a year ago.

Communications Benefits of Going Public

Whether Asia, Europe, North America or South America, the benefits of going public are fairly universal, and include:

  • greater and less expensive access to capital
  • enhanced opportunities to pursue mergers and acquisitions
  • increased liquidity for shareholders
  • a stronger corporate image, and
  • another tool to incentivize executives and employees.

A further major benefit of being a public company is the opportunity to earn significantly more interest and coverage from business and financial information channels, major newspapers, business magazines, television, radio, financial and business websites and other media outlets.

However, the benefits of enhanced publicity come with the increased responsibility of communicating appropriately, leveraging new-found media attention to support strategic business goals while playing by fair market rules and maintaining corporate transparency.

In this post, we put together a few guidelines to help your new communications program reach its full potential, and to help you become aware of how to take advantage of the benefits and avoid the obstacles of communicating for a publicly traded company.

Learn the IPO Communications Rules

While an effective media relations program can help increase demand for company stock, newly public companies learn quickly that the rules of the road are infinitely more complex than when operating under the protection of private ownership.  For example, once a company lists its shares on a public exchange, its key stakeholders extend far beyond media, market researchers, customers, business partners, and employees to include financial analysts, shareholders, shareholder interest groups, and government regulators.

And not only does the communications landscape scale once a company goes public; it also has the potential to become more hostile. Public companies often come under intense scrutiny and attacks in traditional as well as in the blogosphere, which can provide forums for “watchdog investors” and disgruntled employees.

Regulations also prevail in the world of public companies. Quiet period rules strive to lower company awareness in the market, just as media and public interest may be picking up. The cost of noncompliance with quiet periods and numerous other restrictions can be devastating. Regulation Fair Disclosure — known as Reg FD — and the Sarbanes-Oxley Act can be daunting.  A company must be sure to fit its strategies within these regulations.

10 Guidelines for Successful IPO Communications

1. Refrain from telling an external source your company intends to go public. Regardless of when you say it, it can be published when you’re in your IPO quiet period and look like you’ve violated SEC rules. Instead, focus on your growth story and talk about financing as an adjunct that facilitates growth.

2. Develop a story that describes your company’s competitive advantages and barriers to entry without jargon. Do this well advance of the IPO as it will serve as the basis for your corporate description in the prospectus.

3. Strengthen your website now. During the quiet period, your company website will speak for you to industry influencers and potential investors.

4. Stay visible as visible IPOs price higher in the range and trade higher afterwards. Don’t focus only on the Wall Street Journal and other national publications as they are often hard to get into. Trade publications, industry and Wall Street analysts are also excellent visibility creators.

5. Be visible now or your attorneys may say “no” after you have filed. If you haven’t been active before the filing, it will be difficult to be active once you have filed.

6. Once your company has gone public, employees have no right to material information before other shareholders. Make sure your company employees understand the rules. Be prepared to circulate policies that explain how to handle material information and how to avoid insider training.

7. IPO day is the beginning, not the end, of communications. Use the remainder of your quiet period to plan your debut as a public company. Decide what your publicity stance will be on the first day of trading.

8. The first nine months of being public will prove whether you can properly forecast your future for Wall Street. It’s easier to keep your good reputation than try to rebuild it.

9.  Look to bellwether companies outside your industry for best communications practices, and not only to your competitors.

10. Work with your company’s attorneys and advisors to fit your desired business strategy within regulatory rules.

A New IPO Communications Approach

If a company’s stock exchange senses hype in the media, the exchange can ask the company to temporarily retract its offering. While second chances do exist, filing for an IPO takes significant resources, and can take away focus from day-to-day company operations. There’s a premium on doing it right the first time.  New public companies can avoid costly missteps by adopting a new communications approach that addresses all stakeholders and encompasses all pertinent communications disciplines.

Employee IPO Communications Education

Employees are an especially important group. Experience has proven that employees are more motivated when they clearly understand company actions and decisions and have a sense of personal stake in the outcome. The employee communications discipline can take the form of a program aimed at educating employees on behavioral changes and expectations within a newly public company. For example, once a company goes public, employees have no right to material information before other shareholders.

Using IPO Communications Teams

Investor relations, corporate affairs, public affairs and crisis management teams must be equipped to manage and contain media reactions during turbulent times though the rapid dissemination of accurate, comprehensive information. It’s much easier for a company to keep its credibility than to rebuild it.  Communications team members need to function as strategic counselors to management teams and ambassadors to broader staff. They need to clearly understand and advocate the subtle differences between media activity that is advantageous and “safe,” versus potentially risky and damaging during a quiet period – helping to maintain and build company awareness in the market while simultaneously abiding by new regulations.

Social Media & IPO Communications

Social media as practiced with tools like Facebook and Twitter creates an entirely new set of uncharted disclosure issues. On one hand, companies may opt toward transparency and provide information in direct opposition to fair and equal disclosure requirements. On the other hand, some companies simply restrict using social media for investor communications, despite the widespread popularity and advantages of these media in crisis situations. Not every company, for example, is Twitter-like and not about to announce an S-1 filing with a tweet.

Despite the desire for transparency and recent guidance from the SEC on social media compliance and disclosure interpretations  — whereby companies are permitted to use social media to share certain information if specific requirements are met — we advise clients to get corporate legal and IR teams involved in social media to protect the company from violating disclosure requirements. This is a must. The risks simply don’t outweigh the benefits.

*IPO statistics courtesy of Renaissance Capital

No comments yet.

Leave a Reply