Written by Edgar Agents on October 4, 2018
As discussed in our previous blog post, a strong investor relations team is essential in sustaining market interest, communicating with shareholders and the public, and attracting a new pipeline of investors. The IPO marketing process can be divided into three distinct segments, including pre-marketing, the roadshow and pricing.
The last stage of your IPO journey, which usually lasts one to 24 months, begins after shares are priced and allocated to institutional investors. At this stage, aftermarket trading and the “real work” of being a public company begins. The initial euphoria of the IPO, fuelled in part by investors’ interest in IPOs and by press coverage, can maintain share price. However, should the market’s interest in the company wane, trading volume and value of the company’s shares will also decline.
Developing an aftermarket strategy
Once the IPO is over, the newly minted public company must implement a proactive investor relations strategy to attract the optimal ownership mix and long-term pipeline in the aftermarket. A key element to this strategy is attracting equity research analyst coverage and establishing an ongoing dialogue through carefully constructed messages to the targeted investors and analysts. Management must assess their knowledge of the breadth of their coverage to help them understand their company.
A company must also strive for accuracy in its projections and forecasts so that targets are reached. A single negative news report that is not well-managed by the investor relations team can have negative consequences on a company’s stock price. This often comes down to managing shareholder and analyst expectations.
Delivering on its growth promise is a key element to any aftermarket strategy. This means continued execution of the company’s business plan and meeting financial targets on a consistent basis. Central to keeping this momentum is demonstrating the use of IPO capital to accelerate growth, whether by expanding into new geographic areas, acquiring other companies, developing new products, or upgrading technology. Conversely, investors are wary of investing in companies where management is cashing out by selling more than 30 percent of their shares.
Table 4: Post-IPO Risks
|Financial||Set realistic financial targets. New stakeholders will want the company to meet expectations and be financially transparent.|
|Strategic||A robust approach to corporate development is essential. Be careful when considering initiatives to accelerate growth.|
|Compliance||Investors are becoming increasingly focused on corporate governance. This will necessitate getting the right controls in place to comply with a host of new regulations, legislation and filings.|
|Operational||Reconsider the current infrastructure systems and controls to provide timely information to stakeholders.|
Managing post-IPO risk and regulatory compliance
The risk management and regulatory compliance framework established during the pre-IPO stages should not be neglected once a company goes public. Rather, a concerted effort to maintain this infrastructure will be required to manage ongoing risks ranging from financial reporting to compliance to growth initiatives.
More specifically, the top two internal business concerns to investors are cash flow management and regulatory and compliance risk.
Companies are often well-supported until the IPO, but then once they are public, things can get complicated. They should be prepared for issues that may arise following the IPO launch. A maturing public company will need to return periodically to the beginning of the IPO cycle, and recreate strategies and processes to deal with life as a public company.
The transformation from a private company to a public enterprise is often seen as a crowning achievement that can lead to an exhilarating and profitable journey. However, the lure of successfully launching a company into the public sphere should not detract company ownership from thoroughly examining other capital-raising alternatives, even if a company is a suitable IPO candidate.
Not only must senior management lay out a detailed plan to go public, they must be prepared to undertake a lengthy process characterized by many pitfalls and risks that private companies do not have to face. This frequently involves establishing and integrating many complex procedures and structures. It also requires molding a diverse and wide-ranging team of players—including the management team, board of directors and external advisors—into a cohesive unit working effectively for a common objective.
Besides the internal challenges, going public also places new external imperatives on a company seeking public status. Senior management must be prepared to face new levels of public scrutiny, and to convey a positive growth message to convince investors that the company is indeed ready to go public and sustain growth beyond the IPO launch.
Only a senior management team with the vision and discipline to simultaneously undertake these challenges over a sustained timeframe will successfully reap the benefits of a public offering.