Despite currently weak US IPO market, IROs should prepare for an uptick
The feeble IPO market in the US could pick up between now and the presidential elections, experts say. Companies that are ready to face the public’s judgment have a window of opportunity and IR teams need to focus on having a clean slate when the company goes public ‒ and immediately afterwards, says Loren Mortman, president of the Equity Group.
The US IPO market is on track for its worst year since the financial crisis, according to data from Dealogic: only 63 companies have listed on US exchanges and raised just $12.9 bn in 2016 so far.
‘The year has been slow for IPOs,’ says Mortman, whose firm provides IR support for companies pre and post-IPO. ‘And more than half of the listings have been in the healthcare sector… [But] there is a large investor appetite and, if it’s priced appropriately, a company could have an edge.’
She adds that so far this year many companies, including some of her clients, have delayed their IPOs or even chosen to sell the company.
For those companies looking to go public, Mortman emphasizes the importance of having a ‘clean slate’ in terms of corporate governance, as investor expectations have gone up. ‘Investors have become more sophisticated over the years,’ she explains. ‘They are reviewing and digesting a lot of information and they really want management teams to be forthright.’
Pre-IPO prep
There are several elements a company needs to get right before it enters the public market. The first step is to select the right underwriters. ‘They need to be the right fit,’ says Mortman. ‘They should have a good track record, have done work in a similar sector and be willing to go after market support.’
When it comes to creating and positioning the company’s message, IROs should have a look at their firm’s peer group and evaluate where they are positioned in the market.
One of the biggest changes for a company when it becomes public is adjusting to being in the public eye for everything, so Mortman says the earlier IR work begins the better. The companies should prepare an outreach plan and identify their appropriate spokespeople.
Post-IPO strategy
That said, most of the IR strategies begin post-IPO, with the biggest being to implement ‘a clear, consistent investor communications program geared toward building credibility,’ says Mortman.
The other vital factor is developing investment community audiences and relationships through ongoing contact with current and potential investors and analysts. ‘This is especially important for small-cap companies that are not on as many radars,’ Mortman points out. ‘And the relationship-building aspect is key – because it really does need to be a two-way relationship. It benefits both sides.’
After a company goes public it is crucial that management is informed of third-party views of the company, the industry and its peers, she adds. After gaining an understanding of the market’s reaction to the company, an IR plan and the company’s message can be tweaked accordingly.
‘Building and maintaining overall credibility, and building and maintaining relationships in the investment community is vital to a company’s success in the public markets – especially if it intends to tap the markets again with subsequent financings,’ Mortman says.
The majority of the IR strategy needs to be finalized by at least the first quarterly earnings following the IPO, which is an ‘important communication’ that determines how investors perceive a company, she concludes.
