The initial public offering (IPO) market in Washington state has been hard-hit by the Great Recession. In 1999, according to Renaissance Capital, an IPO analysis firm, 16 Washington state-based companies went public, compared to only two companies in 2009. However, 2010 showed a marked improvement, with five IPOs in the state, and one filed so far in 2011.
With the buzz about social networking sites such as LinkedIn going public, more Washington-based businesses may be tempted to try the IPO waters this year. But where should they start?
According to Nick Williams, managing director at Wells Fargo Securities, “the best thing to do is to begin to raise your public profile.”
Get the word out
Through judicious use of press releases, advertising, interviews with trade and business publications, attending industry events, mailings and meetings with potential investors, a pre-IPO communications strategy can make more people more aware of the company.
“Practice telling your story,” advised Williams. “Get people to understand what your company does.”
Williams suggests developing a robust corporate website that is easy to find and easy to read. Content should include company history, customer profiles and leadership team information.
Douglas Miller, a doctoral student of Strategic Management and Innovation at Washington State University, said that his research indicates companies who engage in activities that promote media coverage have better valuation at the
“You want to build excitement and confidence,” said Miller, who has held management positions in both private and public sector firms and has an entrepreneurial background. “Show that your business process is efficient and profitable.”
While making all this information public may seem strange to a company used to holding its cards close to the chest, Williams said “you’re going to be under a microscope when you go public, so you might as well get used to it now.”
Ron Wysaske, president and COO of Riverview Community Bank, who saw his institution through the IPO process in 1998, put it this way: “When you’re not public, everything is secret. After the IPO, everything is out in the open – salaries and compensation for officers, for example. There are no secrets.”
On the other hand, cautioned Wysaske, there are things you can’t say, because the Securities and Exchange Commission (SEC) frowns on artificially stimulating interest in the stock before the registration period begins.
For example, it would be a bad idea to state, “We expect to double our revenue next quarter.” Instead, said Wysaske, it would be better to say, “We are encouraged by the outlook for next quarter.”
Coordinate your communications plan with your corporate lawyers, investment bankers (underwriters) and tax accountants, to ensure you don’t inadvertently break SEC rules. Both Williams and Wysaske advised firms considering an IPO to hire publicity consultants, especially ones who focus on financial publicity, to help hone the message and avoid making unwise statements. These people, according to Wysaske, are in touch with what investors want to hear and can strategically emphasize certain things and de-emphasize others.
After the S-1 is filed, the SEC forbids disclosing any information beyond what is “customary and usual.” By establishing a strategic communications plan and coordinating it with various team players in the IPO effort long before the IPO is filed, you can then continue to share information with the public, even during the “waiting” and “quiet” periods that follow the IPO filing.
Communicating with employees matters too
Miller said that it wasn’t enough to simply craft a few press releases and build a company website.
“You have to instill a sense of culture in the management team,” he added, as well as have an effective training process to make employees aware of the strategic direction the company is taking.
In addition, because employees often receive questions from the press, friends and family members, it is helpful for employees to have access to a list of frequently asked questions and their answers. Here are a few tips on keeping employees in the IPO loop:
• Post IPO news, HR policies, and stock option explanations on the company’s intranet, if you have one.
• Let employees read press releases before they are released to the media.
• Provide an online forum for employees to discuss IPO issues, or hold roundtable meetings.
• Send regular updates via email or voice mail to all employees.
Reputation is everything.
The consistent message you develop in the months prior to the IPO should present your company’s business strategy, earnings strength, vision and culture. But it isn’t enough just to say these things – you have to follow through on them. Think about it this way: If cash is king in surviving difficult economic times, credibility is king in attracting new investors.
“Establish a record of delivering what you talk about,” said Williams.
Also, explained Miller, choose your friends wisely.
“Our research has shown that the selection of venture capitalists, investment bankers and other players has a significant impact on the success of the IPO valuation,” said Miller.
From what to say to what not to say, experts agree the decision to go public will forever change how your company communicates with the outside world.
“The IPO is the beginning of a long-term relationship with the public and with investors,” said Williams. “It’s hard to put the genie back in the bottle.”