Making noise in the quiet period

How to capitalize on an IPO without running afoul of the SEC.

Recently, two high profile companies – Slack and Uber – were examples of how not to handle PR during an IPO. Both companies had to amend their S-1 SEC filings because of unsanctioned board member interviews on CNBC that included commentary that was either not company authorized or inconsistent with its filings.

The amended filings included transcripts of the interviews and disclaimers that the company did not sanction or endorse the comments.

In the worst case, these sort of missteps can result in an SEC-mandated cooling off period requiring the company to push its IPO plans back a few months. That may not sound like a big deal, but the fragile capital markets are always only one disruptive event away from closing up on new offerings, and missing an open window could result in a lengthy delay.

Apart from SEC action, these missteps reflect a sloppiness that can cause investors to wonder if the company is ready for the intense scrutiny of the public markets.

The quiet period. The SEC requires that when a company begins the IPO process it operates in what is called a quiet period. The beginning of that process is generally defined as the point at which the company retains investment bankers for the IPO.

Like most government regulations, the official definition of quiet period is about as clear as mud. But it generally means that all relevant information about the company of interest to potential investors be contained entirely in one place – the Prospectus (S-1 filing), that the SEC reviews and approves.

Any new and material information the company provides elsewhere at this time (e.g., in a media interview or conference presentation) is considered a violation. Even confidential employee communications are subject to these guidelines, as was witnessed in 2011 when Groupon was sanctioned (for a second time) by the SEC for financial claims made by CEO, Andrew Mason in an internal memo.

What is permitted. The quiet period does not mean companies must refrain from speaking at all during this time, which can last 3 to 4 months. They couldn’t effectively operate if that were the case. So what can they do and where are the boundaries?

For starters, companies are allowed to continue normal course of business communication which generally covers basic external marketing and typical internal communication. But it also underscores why it is important to establish a practice of active communication before the IPO.

If you don’t regularly send out press releases or do media interviews around product announcements, data reports, new hires or other basic company developments, it’s tough to claim they were normal course of business communications during a quiet period.

What is not permitted. More importantly, the SEC is concerned about what is said and who is saying it. The primary restrictions concern any substantive commentary about the business, its performance or financial results, future prospects or major developments such as new customers, updates on litigation, entering new markets, etc.

All of that information needs to be contained in the S-1. Anything that is not should not be discussed publicly.

While some companies will publicly acknowledge they are in the IPO process (even if their filing is still confidential), it is generally frowned upon to comment on the offering itself. And the comments of company executives and board members are particularly scrutinized.

It is critical that companies going through an IPO educate their executive team and board — and all employees once the IPO is made public — about the rules and restrictions on communication.

Spokespeople engaging in media interviews or speaking at public events must be coached very carefully on how to answer questions and avoid commenting on topics that will get them in trouble. For senior executives that is nearly impossible, so they should refrain from interviews prior to the IPO.

Listing day interviews. After the pricing and listing of the stock, the company remains in a quiet period for another few weeks. But it has become customary for CEOs to participate in listing day interviews. They’re a great way, using the IPO as credibility and a branding moment, to educate customers and investors.

But in this still-sensitive quiet period, they require skill and preparation. Here are a few tips:

First, carefully prepare for interviews with a comprehensive Q&A session that anticipates the questions common to IPO interviews. Also, plan for questions that cross the line (e.g., "We’ve stated X in our filing, and we look forward to updating investors and the public in the future.")

Be sure the planned responses (and all key messaging) are aligned with the prospectus. Prepare for the media to ask questions about the risk factors highlighted in the prospectus and develop responses that communicate how the company is mitigating those risks.

Consult with company counsel as well as the underwriters and underwriters’ counsel when deciding whether to pursue listing day interviews prior to when the stock trading has begun. And prepare to give the same interview whether the stock trades up 50% or down 50%.

Communicate the company’s long-term growth strategy as outlined in the prospectus, with listing day as the beginning of the next chapter of growth, regardless of where the stock priced or is trading.

Limit the total number of interviews and spokespeople, to ensure messaging stays tight. Remember, the IPO follows a grueling two week roadshow and the management team will be exhausted.

Know your interviewer and make sure they are informed about the company in advance and don’t forget stick to the script.

The last thing you want to do in these interviews is create news. The IPO is the news and it speaks for itself. The interview is simply an opportunity to guide the narrative, inform the story and shine a brighter light on the IPO.

An IPO is one of the most important and exciting corporate events a company will experience and it should be celebrated loudly and proudly. But it has to be managed within the rules laid out by regulators.

Careful advanced planning and experienced execution can help companies achieve maximum brand exposure without stepping out of line.

Michael Fox is the chief client officer for ICR and has advised clients on more than 150 IPOs in his career.

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