Contemplating an IPO? Words of widsom from an IRO, legal and industry experts
26 August 2013
Earlier this month, CommPRO.Biz hosted two excellent webinars on IPOs. In the first webinar: entitled: ‘Ready, Set, IPO’, our CEO and Founder, Darrell Heaps got a chance to weigh in with other panel members on what companies need to keep in mind in the process leading up to their IPO. In the second webinar, entitled: ‘The IPO and Beyond’, I got a chance to sit in and discuss some of the important factors that companies coming fresh out of an IPO need to know in those few crucial weeks after going public.
As there was so much great information discussed, this post will focus on recapping the first webinar where you’ll hear key takeaways from an IRO who recently went public, legal counsel, the NYSE and various PR practitioners. I have decided to put all of the questions/topics discussed into categories. The ideas provided will be based on feedback from the entire group on that particular topic.
Be sure to keep an eye out for the second post where I’ll provide the key takeaways from particular topics discussed such as disclosure training, working with media and insuring deep after-market support.
The Current Market for IPOs
- The current market is at a historic high
- The number of IPOs are up this year
- Size of IPOs this year are much larger than they were in the past
- 116 IPOs – 35% increase from last year
- Of the 116 IPOs 98 of the companies have taken advantage of the JOBS Act
- August 2013 has had the highest amount of IPOs since 2007
- A number of different factors are contributing to the increased number of IPOs:
- A rise in the Dow
- Companies that have the ability to pay a dividend appeals to investors who are searching for a yield.
- Backlog from companies that held off during the financial crisis.
Alternatives to IPOs
- Sell the company
- Test out the M&A market
- Debt or equity financing
- Sell a chunk of equity to an investor
Profile of a Successful IPO Candidate
- Aligned management team (that is looking to stay together and grow the company).
- Solid management team (that has a business plan and knows how to execute it).
- Good board in place (as a general advisory on best practices and independent voices).
Difficult aspects of the IPO process and how to overcome
The S-1 process is overwhelming as it has 20+ sections. One way to tackle this document is to simplify it into three buckets:
- Standard template-driven sections i.e. the more legally tied ones. Such as forward looking statements, dividend policies and description of the stock.
- Financial statement driven section: F pages, dilution, and capitalization
- The ‘Other’ bucket: MD&A*, business section*, executive compensation, risk factors.
*These sections will play out throughout the entire IPO process: roadshow, one-on-ones/group meetings, first earnings call.
It’s critical to ensure that there is a clear, concise, factual message from the aforementioned* – that is messages around the market, competitive strengths, how you’re different, growth and strategies for growth.
Risks and Landmines of going public
- TRAINING: Management team needs to be prepared to be in the public eye. Just because managers are able to guide a small, up and coming company does not mean they are able to communicate their leadership qualities effectively to the public.
- COST: It is expensive being a public company. Need to make sure you factor in all the extra costs including legal and PR.
- LEGAL CHALLENGES: You need to be prepared to work within the guidelines of many different acts and governing bodies. Many companies, even with the best intentions can land into hot watch by not following the proper guidelines and mandates.
- EXTERNAL FACTORS: Shareholder activism. Very common once the shine of a fresh IPO has worn off.
Preparing for life in the public eye
- Shaping your corporate story is key. You need to start setting up your story years before your IPO. It should be something that every growing company is focusing on. That way when your company decides to go public there is an already tracked story that potential investors are able to pick up on and follow.
- Focus on non-GAAP metrics – these help management identify the critical metrics that investors can measure the company against.
- Do a mock conference call at least a month or two before the IPO – the full thing, including preparing remarks and fielding questions from the analysts.
What does the role of the media – both traditional and social play to help generate awareness? (our CEO weighed in heavily on this topic)
- There really isn’t a big distinction between traditional and social media today – it’s all about building ‘sustained’ awareness, and providing consistent information over every channel used for communications.
- Behaving like a publically traded company requires that you start making use of your website as a hub to hold all information about your company.
- Building out a strong newsroom full of press releases shows potential investors down the road when you have announced your IPO that you have been keeping track of your corporate activities.
- Newsrooms don’t have to be just filing cabinets for press releases. They can also pull from other content as well. An example would be of corporate videos with the CEO sharing company news or all of your corporate presentations that are listed on SlideShare. Making the information readily available for investors is going to create a lot of good will and save you the trouble later down the road.
- Companies should build out their social media and overall communication channels before going public. Once closer to the IPO – companies should begin to interject more business-related content into their corporate communications channel.
- Top three recommendations we focus on in terms of how companies should be using these tools is:
- View the Web as an ongoing perception study (pre and post-IPO) – this entails listening about what’s being said about your industry and your company.
- Be transparent and helpful – look to expand your communications and increase the breadth of content that you’re publishing (all within the guidelines of Reg FD of course). Whether you’re publishing it directly or you’re curating it, what you want to be able to do is to be seen as a helpful resource to your company and your industry.
- Be consistent over the long term. Think of your communications as a lifestyle versus campaign. Companies that share information on a consistent basis are able to build out these channels and generate an ongoing sustained degree of awareness.
At the end of the seminar, the floor was opened up for online questions. An interesting question came Darrell’s way:
‘What are some of the must-haves that companies need to have on their IR website prior to the first day of trading?
Below are some of the key points that Darrell recommends every new IR site have:
- IR CONTACT: Make sure you have an IR contact featured prominently on your site. Early on analysts and investors are going to be very active on keeping up with corporate activity. By providing an IR contact you are showing that your company is ready to have a dialogue.
- RELEVANT CONTENT: Investors are looking for material to give them an overall history of the company as well as the structure. Sharing info like press releases, stock information, SEC filings, and Corporate Governance documents are all essential.
- CURRENT INFORMATION: You want to make sure that you are consistently updating the site. If investors keep returning to find that nothing has changed, eventually they will start looking elsewhere and your website will not be a trusted source for information.
- CONTEXT: Tell the full story of your company. Include corporate bios, pictures from projects or anything that will give investors the “inside look” of what goes on at your company.
- FAQ’S: An FAQ section is essential because it can alleviate repetitive calls into the IR department.
- INTEGRATION OF ALL COMMUNICATION CHANNELS: Finally, integrating your social communications on the site is a great way to maximize your online communications efforts. Not only can it aggregate all of your activity on channels investors may not be watching. It shows them that they can find your information on a variety of channels that they may use.
Overall, it was a fantastic webinar and we were so glad that we were able to participate in both sessions. We strongly suggest that if you did not get the chance to attend, you should check out the replay or read the transcript.
Stay tuned for our next post where I’ll provide the key takeaways from particular topics discussed such as disclosure training, working with media and insuring deep after-market support.