After several starts and stops over the past 24 months, the IPO market is back.
Re-energized by such high-profile deals as LinkedIn and Pandora – as well as the much-anticipated arrival of Facebook – the IPO market in 2012 enjoyed its highest first-quarter volume since 2007. Bloomberg Business News recently reported that, in the first quarter of 2012, “…44 companies [raised] a total of $5.8 billion [and] shares of 80 percent of those companies have risen from their initial price.”
Most of these deals have been backed by private equity or venture firms – a trend we would expect to continue in the near term as such ownership groups are eager to capture the value they’ve built within their portfolios during the “Great Recession.”
For companies preparing to go public, the “… IPO readiness window takes between 12 and 24 months … [for] planning [that] may result in higher return on investment, and allow change to institutionalize,” according to Deloitte. The same holds true for developing effective investor communications.
Here are six keys to prepare your organization successfully to serve the investment community:
- Learn the rules. Make sure the members of your management team understand and have been trained on how to fulfill their fiduciary and public disclosure duties – particularly as it relates to your disclosure policy and practice. Establishing a thorough disclosure policy that is administered by corporate committee will be critical to your compliance and risk management efforts.
- Listen to what’s being said about you. Long before your stock symbol crosses for the first time, you will be the focus of an ongoing online debate among investors and market influencers. It is essential that you actively monitor this discussion, which can be an “early warning siren” alerting you to market sentiment that could impact valuation.
- Know your peer group. Analyze the individual investment highlights of your peer group. Understand their IR activities and strategies, corporate governance and disclosure practices and how they impact shareholder mix, valuation, analyst coverage, capital structure, trading volume, proxy advisory coverage and other metrics.
- Know your audience. Understand the composition of your targeted investor base – including what drives their investment decisions and their voting history on governance issues. Similarly, do your homework on the sell-side analysts who will be most influential post-offering. Finally, do not overlook retail buyers or your employee owners, both of whom can represent important voting blocs on proxy matters. This insight will help ensure your investment thesis clearly answers the question, “Why should I invest in this company now?
- Have a Web strategy, not just a website. Investors rely heavily upon the Web for conducting due diligence on investment ideas and maintaining visibility on their portfolio companies. Make sure you provide the information investors need and deliver it the way they want to receive it. For example, make sure your website is programmed to function properly on smart phones and tablets. Similarly, determine how platforms such as SlideShare or Twitter could benefit you and your investor audience.
- Work with the media. The media remain a powerful source of investment ideas for buy- and sell-side analysts. You should know which news outlets influence your sector and target investors so that you can establish a working dialogue with the appropriate reporters and editors long before the offering is launched.
Being publicly owned comes with unique burdens. The earlier you prepare for them, the more effective you will be in communicating with investors over the long term.