A trump card for the company must be the management’s track record, usually, but not always, the same as that of the company. Where these differ, it is vital that the individuals have their own proof of caliber. Beware, at this point, the codicil question directed artfully at the Chief Executive: “…and are you happy to be taking your business public?” We have seen executives hesitate at this question – and it looks awkward. As a precaution someone should ask every member of the presenting team at a moment when their guard is down, “Are you quite sure you want to do this, and right now?”
Having set out its stall the floating company, whether a minerals business or financial conglomerate, will find itself, often to its surprise, parrying blows on an altogether more hostile agenda.
Journalists, analysts and investors will always look for a positive core story, but they will also be skeptical. Good IPO communication is as much about composing the ripostes to questions about vulnerabilities as it is about the overarching narrative. And the IPO without vulnerability has yet to reach the market.
Voices of doubt can come from an unexpected quarter. Prior to pricing, the role of the institutional investor, soon to be part-owner of the business, is ambiguous. It is axiomatic that if a fund thinks that a stake in a new company is good value at x pence per share, it will naturally be even more eager to get it at x minus y pence per share. And a principal mechanism for driving the price “south” is the media. In the frenzied atmosphere that surrounds a new float a journalist will often prize the views of a shareholder or potential shareholder above the opinions of the company or its advisors. So a quiet word that the selling party may have let its imagination run away on the valuation multiple will find space and a sympathetic headline.
The emergence of the price range presents the greatest moment of risk. Surprising as it might seem, some companies really believe journalists can be persuaded to write about an IPO without estimating what the company will be worth. Disaster may therefore ensue if company and broker do not look each other in the eye the night before the announcement of intention to list, and agree a number that both are comfortable seeing appear on Reuters, Bloomberg and Dow Jones the following morning.
Expect rigorous scrutiny of the sellers’ rationale, and for it to be linked (sometimes accusingly) to the rationale for the float and the total sum of the proceeds. This is always heightened at certain points in the cycle. For example, over the next few quarters, with private equity funds widely believed to be under pressure to sell down their portfolios and exit investments, the distress of the seller will be a legitimate issue for the media. Journalists will inevitably focus on the way in which potential investors may exploit the sellers’ circumstances – with the management team fighting it out in the middle. Remuneration arrangements are obviously highly sensitive.
To any Chief Executive, leaving the shelter and anonymity of private ownership for the exposure of public ownership can be frightening. Establishing a positive communications message at the outset will not only enable a company to navigate the fast moving rapids of the IPO process but will pay off handsomely in future relations with media and investors.