Despite the required financial expertise, communicating during an IPO isn't a job for bankers.
Last September, Avalon Pharmaceuticals, a biotech company, had an IPO. But by the time CEO Ken Carter rang the exchange's opening bell on the day of the offering, investors weren't just buying a stock - they were buying the company's idea.
"We were very disciplined in crafting a specific story," Carter says. "That was all a very focused effort." In fact, Avalon had been working with its agency, Euro RSCG Life PR, for a full four years to position the company correctly in the minds of institutional investors, analysts, IR professionals, and the media in preparation for the big moment - winning laurels from publications like Red Herring, speaking at conferences, and generally ensuring that its target audience knew what Avalon was and why they should care.
Avalon's innovative technology-oriented area of the biotech field had not been particularly in favor among investors for the past few years, so the successful completion of an IPO was even more heavily dependent on getting its message into the right minds. "Just to have completed it was a huge accomplishment," says Carter.
Tony Russo, CEO of Euro RSCG Life PR, says Avalon is a good example of the importance of positioning a company in the pre-IPO period as "perhaps a leader, a pioneer in [its] individual space." Next comes Web site development, speaker training for senior management, and promotion to the trade and financial media - all focused on the same key messages about the company.
Russo emphasizes the importance of including those messages in a company's S-1 document, the main filing a company makes in anticipation of an IPO. That document will largely determine the investment community's perception of a company and should not be left strictly to bankers and lawyers.
"That becomes a marketing document," says Hollis Rafkin-Sax, US vice chairman of Financial Dynamics. "While you're in a quiet period, that is really the only information out there about you... It's very important that communications has a role and works side by side with the advisers."
Indeed, the most important role of any financial communications firm is to add value to a company's IPO by firmly asserting its expertise. Bankers are obviously the major players in the process, but their communications services are far from comprehensive.
"We have somewhat empirical and intuitive sensitivity to what resonates and what doesn't resonate," says Bob Leahy, an EVP at the Financial Relations Board. "The banks don't tend to have that."
When a company sets out on its road show to court potential investors - a grueling journey
that can drag top management through 70 meetings around the world in a very short period of time - its agency should be constantly monitoring the feedback of the investors and helping the company keep its message in tune. Leahy says this is a critical job not only to help maximize a road show's success, but also to keep management apprised of a realistic picture of its outlook - again, not a job for bankers.
"The primary word that comes out of any bank's reaction to a client is 'great'... that's all they ever say," Leahy notes. "[Agency feedback] helps a company to really figure out how it's going and to really have a true sense of whether this message is going to fly to the market."
Rafkin-Sax breaks IPO communications down into a three-step process so that clients can easily understand it. First comes due diligence, when the agency performs intense research to determine exactly where the company stands in the market, what its needs are, and who its peer group is. This phase, which should be done before bankers are engaged and the quiet period begins, involves establishing a fully functioning IR Web site and infrastructure for the company that can be ready to go as soon as the IPO is completed.
When everyone feels the company is prepared, the second phase begins as management takes its show on the road. Immediately after the end of the road show comes the pricing of the stock, and the IPO is held the next day.
The quiet period extends for weeks after the IPO itself, but smart companies will not take
any time off.
Leahy points out that the company's enforced silence can extend well in excess of 100 days, making it all the more important to build analyst relationships and have strongly pre- pared messages out of the gate when it's time to "turn on."
"Companies need to understand that that's the starting bell, not a vacation period," Leahy says.
In reality, smart companies will have much of the necessary work ready to go in advance of the IPO; others, though, will coast and may be in for a rude awakening if their price drops quickly post-IPO.
Much of the art of successful IPO communications is a matter of surveying the competitive landscape, determining truthfully where a company stands, and helping to shore up the flaws in the corporate message, says Bill McBride, MD at Gavin Anderson.
"What you want to do is to be walking and talking like a public company before your IPO," McBride says.
Although IPO communications is a competitive field, pros say companies have to choose their agencies based strictly on quality and not look to cut corners. It's a major corporate milestone; why not go for the champagne?
"An IPO is one of the most important events in a company's life," McBride notes. "If you're a woman ready to have a baby, you don't pick an obstetrician based totally on the price."
IPO: communications checklist
Craft a company's main message or story
Build awareness in the minds of investors, analysts, the IR community, and the media
Create IR materials using best practices
Utilize the S-1 filing as a communications document
Constantly refine the message of your road show
Make sure management understands it cannot go astray during the quiet period
Day of IPO: Action stations
Gain as much financial media coverage as possible
Internally communicate your gratitude to employees
At the NYSE, bring a token gift for John Thain - it's a tradition at the exchange
Post-IPO: quiet period
Track your stock's progress closely, and prepare timely messages for when the quiet period ends
Gain analyst coverage
Seek to adjust your investor demographics to favor long-term investors