When a company files for an IPO, it enters a minefield of cans and can'ts, dos and don'ts. Keith O'Brien discovers what it takes behind the scenes to go public.When a company files for an IPO, it enters a minefield of cans and can'ts, dos and don'ts. Keith O'Brien discovers what it takes behind the scenes to go public
This May, Salesforce.com was well on its way to having a successful, yet quiet IPO, due to the fact that it crept up to the starting line behind everyone's favorite, Google. Salesforce.com had not manifested into a verb or an adjective. It hadn't been the subject of a Sex and the City episode. Potential investors and tech-heads left and right were not whispering its name like it was the zeitgeist. And that initial low profile very well might have been its downfall.
In this new IPO era, hype can be an unwanted guest if you plan to go public. In Salesforce.com's case, it came via a 2,659-word article by The New York Times entitled, "It's Not Google. It's That Other Big IPO."
Ironically, Salesforce.com CEO and founder Marc Benioff repeatedly rebuffed reporter Gary Rivli's questions with a blanket statement about SEC preclusions. However, due to some comments Benioff made in that article, Salesforce.com delayed its IPO.
"The CEO granted an interview with a major publication. If he had done it once or twice a week for the past six months, it might have been construed as a normal course of business," explains Richard Anderson, a SVP in Fleishman-Hillard's corporate and business communications group.
"Salesforce.com is the poster child for what can go wrong," says Hulus Alpay, SVP for IR at Makovsky & Company.
PR and IR pros, when representing a company approaching the public markets, need to realize all of the tools at their disposal to satisfy the SEC during the quiet period. Investment banks, the exchange where the company will be listed, VCs, and whoever else is involved should be used as a sounding board before going to the media.
"If you have all of those people together," Alpay says, "that can keep you out of trouble."
Of course, this entire discussion signals that the IPO has definitely returned. "If you look at the markets, the numbers of offerings have increased," confirms Bob Leahy, EVP and GM of the Financial Relations Board's New York office.
"The IPO is back, and I suppose it's back as a sign of a healthy capital market," says Brian Rafferty, partner at Taylor Rafferty, the firm that took InfraSource public in May. However, he adds, IPOs are harder to work on now than in the dot-com days when there were so many. "The IPOs that are coming out now are hard work," he says, "but they are getting done."
The earlier a company puts itself in the IPO mindset, the better, experts agree. "You look smarter when you look like a public company earlier," Leahy says. But despite this advice, the fact remains that an external IR agency probably won't get involved until the filing date.
"If you look between the filing and pricing, it is [typically] 60-90 days or so," Leahy says. "Yes, you could have IR come in before you file, but the S-1 [filing] tends to change on the course of the deal," Leahy says, from his experience on the investment banking side. Once the S-1 has been published, the silent period begins and the S-1 becomes the company's bible.
"[If] you stick to exactly what is in your filing, [you're fine]. You can't alter it in any way," Alpay says, urging CEOs to refer journalists to the document.
The new-business pipeline for firms seeking to provide IR and communications expertise for a company's IPO is largely a reactive one. Firms must stay on their toes. The period from filing (in other words, the time that a company's intentions are made clear) to completion is a small window.
So it's up to IR firms and the like to proactively promote the ways they can steer a company through the choppy waters. For example, Makovsky has created what Alpay calls an "IPO readiness alliance," a blueprint to what is needed to go public that allows the firm to educate CEOs, with law firm Akin Gump and accountant firm BDO Seidman. The alliance holds seminars to educate managers of prospective IPO companies with the rules of the new environment.
Alpay adds, "A private company must work with an agency that has recent IPO experience because what was working two years ago from a communications perspective has changed."
Once being retained by a company going public, the first thing communications pros must do during the quiet period is to ensure CEOs stick to the script, especially when they're doing the "road show," a relentless series of meetings with potential investors and the like. This is no job for amateurs. "In this riskier environment, it's only the most seasoned execs doing [this kind of] media," Alpay says.
The key thing to remind the executives doing these shows is that the intent is merely "symbolic" to say they are pleased to have gone public, Anderson says.
There are many things an IR person must do to get the company in shape once his or her function is defined. Leahy calls it a five powers of functionality strategy: developing the message, complete with milestones and guidance benchmarks; creating communications material, including the investment profile and the investment presentation (which the investment bank tends to works on); establishing a public company protocol; determining a target audience so you can do direct mailing of corporate profiles and make banker and analyst introductions; and setting up financial media communications for the post-IPO period.
"The most important thing is to make sure you have a clear and durable investment thesis that is built upon the exceptionally detailed components that go into the disclosed documents," Rafferty says.
It's also vital to make sure company execs understand the importance of adhering not only to these documents, but also to the advice of IR advisors. Leahy warns that IR personnel might be faced with an attitude of "we'll get to it when we're public. I have too much on my mind."
Once the company goes public, the IR job heats up more, as a whole new set of rules comes into play, specifically the Reg FD and Sarbanes-Oxley legislation.
"The original congressional authors readily acknowledged that they didn't have small companies in mind when drafting [Sarbanes-Oxley]," Leahy says.
Sarbanes-Oxley, rather, deals with executives having to sign off on financial statements, and Reg FD requires that when material nonpublic information is disclosed, it must be made available to both institutional investors and the public simultaneously.
A company needs to have immersed itself in these rules before it officially hits the markets, to make sure no missteps are made. "There's no substitute for planning," Anderson says.
Do use all resources to bandy about ideas and strategies
Do help the company act like a public one as soon as possible
Do work in tandem with the investment bank for the offering
Don't let a company deviate from its normal business procedure
Don't let execs put off planning due to busy schedules
Don't let the CEO talk to the media without reinforcing the perils of hype