Red herrings, green shoes: 15 terms every PR pro should know before an IPO

You'll pull your hair out. You'll lose sleep. On Sunday nights, you'll cry. Fifteen terms to alleviate the pain of working on an IPO.

(Image via the New York Stock Exchange's Facebook page).
(Image via the New York Stock Exchange's Facebook page).

Participating in an IPO is a rite of passage for PR professionals, but it can be intimidating. You’ll be working closely with your CEO, CFO, and general counsel, and with a host of investment bankers and lawyers who’ll be throwing around terms that are new to you. Don’t panic. Here’s the vocabulary you’ll need to negotiate this exciting challenge.

Phase 1: Preparation
Preparation is the most difficult phase for PR, because you can’t say you’re in quiet period or acknowledge the upcoming IPO in any way until there’s a public filing. The challenge is to act "as if" so that you don’t run afoul of Securities and Exchange Commission regulations, while saying nothing to signal something is up.

Quiet period
This technically starts the moment a company makes the decision to go public, but companies often use the "organizational meeting" with lawyers or bankers as the marker. That’s also when leaks can start, so you’ll want to have a holding statement prepared. Once you’ve filed, you’re still in quiet period—the difference is that you can now say so. The quiet period can last up to 25 days beyond listing day.

Beauty contest/Bake off
Both describe the process by which investment banks go to a company and pitch themselves to lead the syndicate and guide the company through the IPO. PR likely won’t be included in these meetings, but you’ll hear about them.

After the bake off, the company chooses a syndicate: the group of investment banks that will market the company’s shares. Typically there’s a lead underwriter, a couple of bookmakers, and several "co-managing" underwriters.

Normal course of business
A quiet period doesn’t mean you have to be totally quiet, it means you can’t talk about the IPO. You can, however, continue to do media interviews that support the company’s "normal course of business." This might mean you’ll say yes to an interview where your COO talks about the benefits of your product, but no to an interview where the CEO talks about the company’s strategy. The more media you’ve done before you file, the more you can do now. If you’ve established that you have a steady, active media program, your "normal course of business" is more expansive. But if your CEO has never done an interview with a U.S. news outlet, don’t start now.

Phase 2: In registration
In registration is when you’ve announced that you’ve filed for an IPO and filed a draft prospectus with the SEC. The SEC has the option for three rounds of review, with 30 days in between each, so you may be as much as 90 days or more out from the actual listing day. The good thing is that when negotiating media, you can tell people, "We’ve filed for an IPO, so we can’t comment on ___ right now."

Gun jumping
The SEC has rules to prevent companies and underwriters from "priming the pump," i.e. conditioning the market or driving demand for the stock. The rules lay out what a company can or must say (the prospectus) and what it can’t say (anything besides the prospectus). They apply to everything from interviews to press releases to social media postings and violating them is called "gun jumping." What’s key is that the SEC’s determination of gun-jumping isn’t based on intent, it’s based on effect and evaluated in hindsight, not whether you meant to condition the market, but whether, in retrospect, the action you took had that effect.

Cooling off period
If the SEC determines that a company has jumped the gun, it can impose a "cooling off period," which could delay the IPO and result in sanctions or fines. It’s also embarrassing as it’s generally considered to show a lack of judgment.

Registration statement or prospectus
The document filed with the SEC that describes the company and the stock offering. Also known as the S-1 or F-1 for non-U.S. companies.

Founder’s letter
A letter from the CEO or founder included in the S-1 making the case for the company including its history, values, and strategy. It’s a tradition started by Larry Brin and Sergey Page for Google in 2004 and it’s become something of tradition for so-called "internet companies" going public. Expect to go through a lot of drafts.

Red herring
The near-final prospectus, with everything except details of the price and number of shares being offered. The term comes from the bold disclaimer in red on the cover, which states that a registration statement relating to the securities being offered has been filed with the SEC but is not yet effective, and that the prospectus is subject to change.

Free writing prospectus
A supplement to the formal prospectus that can be used to correct mistakes or to cover an unwarranted comment. For example, if your CEO gives out information in an interview that wasn’t in the prospectus, you can file a free writing prospectus to "add" it in.

Phase 3: Listing
This phase begins with the road show and ends with the close of the offering. It’s typically a very busy time for PR. It also can be an emotional time; if market conditions are volatile or if there seems to be skepticism about the offering, anxiety may run high. Try not to take things personally; just stay focused on making listing day successful.

Road show
Also called a "dog and pony show," this is typically a 10-day road trip taken by the CEO, CFO, and head of investor relations to different cities to meet with QIBs and drum up interest in the stock. It’s invitation only for potential buyers; no media are allowed.

Build a book
Book building is essentially price discovery. Typically a company will come up with a price band, such as $14 to $16 per share. Bids are invited, each investor says how many shares they want and what they’re willing to pay, and the lead underwriter puts the list into a "book." The company and underwriting team use this information to decide on the final share price.

Listing day
The day the stock starts trading is a big one for public relations. Today, finally, you can do media—typically broadcast first, then print—then it’s back into QP.

Offering price; opening price
"Offering" is the price at which the company agrees to sell its shares to investors. "Opening" is the price at which those shares begin to trade in the open market. The difference is the amount of instant profit or loss for investors in the IPO. 

Green shoe
Also called the "overallotment option." If there’s high demand for the offering, it allows the company to authorize additional shares, typically 15%, to be distributed by the syndicate. This increases the total offering size and is why the closing press release may not happen for a few days.

An IPO is one of the most stressful experiences you’ll ever have. You’ll pull your hair out, you’ll work weekends, and you may cry on Sunday nights. It’s also an incredible opportunity for professional growth, and one not everyone gets to have. Knowing the new language you’ll be speaking during the transaction will make it easier.

Beth Haiken is EVP at Method Communications, a technology PR and integrated services agency with offices in San Francisco and Salt Lake City.

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