The art of IPO communications, and why it matters
By Michael Fox
With the short amount of time between an IPO filing becoming public and the completion of the IPO, the transition from private company to public can feel like a whirlwind. In a matter of weeks, companies go from relative obscurity to the intense scrutiny of a new set of stakeholders, including investors, analysts, regulators and the financial media. And with that, the rules of communicating need to change as well.
But the process of going public doesn’t begin with the filing of official documentation (known as SEC Form S-1), nor does the shift in communications occur on the actual listing day. An IPO is a once-in-a-lifetime branding opportunity, and should be the culmination of a thoughtful and methodical strategic communications process that readies the company for the public stage.
In some ways, the 2012 Jumpstart Our Business Startups (JOBS) Act has lulled pre-IPO companies into communications complacency. Under the Act, any private business that falls into the “emerging growth companies” (EGC) category (which included 85 percent of new issues in 2014 according to a study by Latham & Watkins) is able to file its S-1 confidentially. What that means from a communications perspective is that – apart from rumor and speculation – the general public has no knowledge of the EGC’s IPO plans until the finalized registration statement is publicly filed which, in most cases, is about one month before the company complete the IPO and goes public.
Here’s where most companies pursuing an IPO make a big mistake: they don’t start thinking about IPO communications until right before their filing is set to become public. At this point, the company is already deep into an SEC-mandated quiet period which severely restricts their ability to communicate.
While it is widely viewed as permissible to conduct media interviews on listing day, that is far from the ideal time to begin telling your story. How can you expect the media to get your story right if listing day is the first time they’ve ever heard it—or even worse, of you?
Private companies on the path to going public face a host of different communications challenges: some have virtually no media presence; some are doted on in the consumer media but are either ignored or misunderstood by the financial press; some are media darlings but border on being overhyped. Regardless of their unique situation, companies benefit from managing the messages around their IPO and growth story as much as they can and as early as they can. And in order to get the story to unfold the way they want it, companies need to seed the key elements of their story with the media well ahead of publicly announcing their IPO intentions.
So when should companies begin strategically communicating around their IPO? For companies that need to build brand awareness or correct misperceptions in the business and financial media, the more time they build into their planning, the better. Launching a corporate rebranding, or announcing new strategic plans a few weeks before the start of a quiet period isn’t going to be nearly as effective as a program that begins six months to a year in advance.
IPO communications should start taking shape at the onset of the IPO consideration process. To be clear, that doesn’t mean the company should broadcast that it’s preparing to go public – not only would that be premature; it could potentially scare off investors, lead to unnecessary speculation and derail the entire process. But if it is a sponsor-backed company or one that contemplates a future liquidity event (IPO or sale), then it is never too early to start setting the stage. Companies should focus on ensuring a clear understanding of their business model, growth strategy and key points of differentiation. Every media opportunity should be seen as an opportunity to educate the media on the company’s value proposition and competitive advantages, the broader market opportunity and dynamic industry trends.
The idea is to build momentum going into listing day, and present the IPO as a logical next step in a gradually building story. Not only do companies need to actively cultivate that story line, they need to make sure they’re telling it to the right people. Private companies that have been hyped up prior to their IPO may not struggle to find ears, but not every reporter will report the story like they tell it. On the flipside of the coin, companies flying under the radar may not get the attention they deserve or wind up talking to a reporter unfamiliar with their business.
Relationship building is hugely important for both under-hyped companies and companies in the media spotlight. There is no room on listing day for potential surprises. Companies need to be picky with their listing day interviews and take meetings with the reporters who will be most receptive to their story and share it with the most relevant audience. Ideally, companies will speak with reporters who not only know and have followed their business, but have connected with company executives previously. Listing day shouldn’t be a first conversation but a continuation of an ongoing dialogue. And reporters who have preexisting relationships with executives are much more likely to be personally invested in the outcome of the IPO and write more thoughtful stories.
Again, in order to have those relationships in place by the time listing day comes around, companies need to carve out time for raising their profile and meeting with media before they’re confined by quiet period restrictions.
Listing day isn’t the be-all and end-all for IPO communications. There aren’t just investors and the media to think about, but employees, vendors, partners and customers. Going public has implications for every company stakeholder, and just as much time needs to be spent on communicating with these internal audiences and assuring them business will continue as usual. Management needs to walk a fine line between rallying the company behind the IPO and preserving confidentiality. Quiet period restrictions apply to every employee, from CEO to intern, and a violation of these rules can have serious repercussions.
While many CEOs want to be as transparent as possible, practically speaking, informing all employees of IPO plans in advance of the public filing of the S-1 is very risky. Instead, management should put together a small task force to stay involved throughout the IPO process and oversee internal and client communications. This entails developing strict communications guidelines and social media policies for when the S-1 does become public as well as educational materials on the implications of the IPO for each relevant stakeholder.
A successful IPO is typically the result of years of hard work and careful planning. Instead of slapping together a communications plan in a couple of weeks or days, IPO communications should be approached in the same strategic and thoughtful manner. Most companies only get one opportunity to walk down the IPO aisle and it will serve them well to ensure they look their best before they step onto the altar.
Michael Fox is Managing Partner at ICR, and also co-heads ICR’s crisis and transaction group.