KCSA Strategic Communications conducted a survey of attorneys who advised nearly all the major IPOs in 2012 to gauge their thoughts on how the IPO market for 2013 is shaping up. The main takeaway this year is that uncertainty in the economy is dogging IPO enthusiasm, but opportunity still abounds as a result of the Jumpstart Our Business Startups Act.
The JOBS Act became law in April 2012 and allows for emerging companies - with revenue under $1 billion - to file for an IPO confidentially until 21 days prior to a roadshow for the offering. From a communications standpoint, this appears to be a win for companies that wish to avoid the hype of an IPO similar to Facebook's. It would also seem as though Congress has retreated from its compliance dictate, at least with respect to smaller businesses. Under the new act, companies have the ability to test the market's appetite on how investors will value their organization and even go so far as to pre-market the offering.
But it begs the question, is this a good thing for the IPO market and markets in general? The answer is yes and no. It is a good thing if more companies consider reaching out to the public markets for capital, as this breeds the liquidity markets have yearned for since the recession began in 2008. On the other hand, it is not a good thing if companies use the act and ignore their ongoing obligations to transparently communicate with Wall Street.
Companies considering IPOs need to remember that it is one thing to go public at a certain valuation; it's another to sustain that number. What a company says about its growth opportunity, how it communicates it, and to whom it communicates its investment proposition determines how the investment community will value that company.
Facebook is a perfect example. Its valuation is down 35% from its IPO price. And this can be directly attributed to the company's failure to communicate its growth strategy and opportunity.
The JOBS Act should not be viewed as an excuse not to communicate. Whether a company files for an IPO confidentially or not, it still must communicate openly to achieve the highest, fairest, and most appropriate valuation.
Jeff Corbin is CEO of KCSA Strategic Communications and author of Investor Relations: The Art of Communicating Value.