IPO (Initial Public Offering) is a public offering in which shares are offered on the stock market. Once they begin trading in conversation, the company gains public company status.
Financial advisors, called underwriters, are hired to conduct an IPO. Most often, these are investment banks. An underwriter helps set the stock price, runs a marketing campaign to attract investors, and collects initial bids to buy securities before they become publicly available on the exchange.
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Four IPO Steps
Typically, an IPO involves four main phases:
Preliminary
The company prepares reports and evaluates the financial condition and efficiency of the company. This phase can take several years.
Preparatory
The company selects underwriters and exchanges for the placement (listing). An investment memorandum is developed for potential shareholders, and documents are filed with the Financial Industry Regulatory Authority. If approved for listing, a publicity campaign or roadshow is launched—a series of meetings by underwriters and company representatives with potential investors.
Basic
The underwriter forms the so-called application book of those who want to buy shares before they are traded on the stock exchange. The share price, their number, and their dividend policy are determined.
Final
From the application book, some shares are distributed to investors. Then stock market trading begins.
In all these stages, public relations for the IPO occupies a significant niche. It entails a radical rethinking of the company’s societal relations strategy, shifting from limited contacts on single news occasions to open, frequent communication with all key audiences that affect the company’s efficiency. The creation of a full-fledged public relations service with the inclusion of its head in the list of top managers who make strategic decisions (the so-called decision-makers).
The company must choose a leading PR structure that specializes in interaction with financial institutions and investors.
Passing all stages of the IPO and successfully going public is unthinkable without a comprehensive strategic PR program using modern public relations technologies. In this case, they mean a logically structured process of effective influence on target audiences, based on the active use of techniques, methods, tools, and resources to obtain from them the necessary help and support in achieving the main objectives of the IPO.
The company becomes more transparent to investors after going public.It should publish financial reports on time, talk about plans for the future, and monitor its business more carefully than before.
Still, this does not deter companies from going public for many reasons. Among them:
- raising funds for development;
- the opportunity for shareholders to sell a stake in the company or exit altogether;
- Increasing capital liquidity: it is easier for public companies to obtain a loan from a bank against a pledge of shares.
Going public allows the company to gain a public status that elevates it to a new level among solid players in the market. Going public is also associated with strengthening the branding of the company. It requires transparency, improving the quality of corporate governance, moving to new standards of financial reporting, etc. And this process is fraught with serious difficulties for any organization, including building public opinion. After all, it is the external reputation that will influence the price of future securities.
The task of public relations for an IPO is to raise the company’s profile among potential investors, attract the special attention of analysts and stock market gurus, and then build confidence through detailed reporting on key financial and corporate indicators. It is necessary to create the most convenient mode for the investor to make a decision complementary to the issuer.
You need to take into account many different factors: to predict a change in the situation, the actions of competitors, and all this under the great attention of the public, which, on the one hand, is desirable and, on the other, very often becomes a problem when “steered in the wrong direction.”
Main IPO Public Relations Stages
PR support for the IPO can be divided into four main phases:
- Stage of preparation that includes research and identification of the fundamental PR strategic elements of information and communication support.
- Development of the complete PR support program for the preparation of the IPO and the release scheme, which is prepared by the underwriter together with the top management of the issuing company.
- Practical implementation of the information and communication support program up to the listing.
- Evaluate the effectiveness of the technologies used in implementing the PR program to support the IPO phases.
IPO Public Relations Collaborations
Interrelated directions of IPO PR support:
- communication audit and marketing research;
- strategy development, main messages, and materials;
- announcement of intention and launch of the first information wave;
- special projects supporting image advertising;
- production and the second information wave directly;
- post-IPO period—information activity support.
At the preparation stage for the IPO, the company should conduct a communicative audit: analysis of the existing image, the degree of publicity of the company and the fame of the first persons, existing relations with the media, competitive analysis, and separately, analysis of rumors, negative information, and the context of references.
As a result, it is critical to begin collaboration at least a year before the anticipated release date in order to launch a chain of informational reasons, an “information wave,” to reach all target audiences, establish communication with the media, and make program adjustments as needed.
Several sociological procedures are involved here:
- expert survey;
- focus groups;
- media monitoring;
- analysis of passive PR tools.
The information obtained is related to marketing research data (research of potential investors) and market analysis, which allows developing an adequate communication strategy for maintaining the IPO.
The impact on the main target audience — potential investors, should be carried out both directly (through the media, image advertising) and indirectly (with the help of experts, analysts, and opinion leaders). In essence, PR here performs an IPO marketing function: to increase fame, cause “appetite” and excitement among investors, initiate a sound wave, and form a feeling of profitability and limited supply.
PR support tools include traditional PR technologies: press conferences, speeches by bank analysts and company members at round tables and on TV, and image advertising in the media. Special events (presentations for investors or roadshows) are also being developed.
IPO Participation Flaws
High risks. Not all companies have their shares grow after being listed on the stock exchange. Moreover, even well-known brands conduct unsuccessful IPOs, for example:
- Uber — shares fell from $45 to $33 in the first year after the offering;
- Facebook — securities were placed on the stock exchange at $38, but fell by 20% after the start of trading and recovered only a year later.
- In 2018, Xiaomi’s shares were listed at HKD 17.6. Two years later, securities were trading at 12.7 HKD.
Restrictions. IPO participation is available only to qualified investors. Not all brokers give access to the primary placement.
There are no guarantees for the execution of the application. If there is high demand for shares, the underwriter may ignore or partially satisfy the investor’s application.
High commissions. For the right to participate in the placement, the broker will take a percentage of the transaction amount.
Threats to IPO Public Relations
First of all, you need to take into account that bad news is always more interesting than good news. Furthermore, negative information is more easily accepted than positive information. The very fact that negative or incriminating information appeared during this period already makes you think about investing.
Adherence to the topic of openness, transparency, and so on leads to falling into the trap of public attention when minor or major problems of previously unknown to the market companies emerge. For example, an intra-corporate conflict involving the “top management team,” which was previously unknown to anyone, can easily become public and, at times, characterize corporate governance in the company for investors.
Since there is a tendency to increase competition for the investor due to the general increase in the number of companies entering the IPO, as well as companies from one market niche, the likelihood of clashes between them and the risks of using black PR increase. In a state of aggravated competition, companies are fighting for media attention and, ultimately, for the choice of an investor.
Initial Public Offering is a risky type of investment, but one with high potential returns.
IPO Public Relatins Tips from Industry Experts
Prepare for the IPO in advance
*This tip was provided by Bozlur Rehman, Founder, and owner of BikesAdvisor
The marketing communications team should be notified of the company’s intention to go public whenever possible. When a company has raised significant venture capital, it typically pays back investors through acquisitions or an IPO. Whenever a company plans to go public, a prospectus (known as an S-1) detailing its intention must be filed. Once the company has completed the JOBS Act (Jumpstart Our Small Business Startups) filing process, it is in a “Quiet Period.” Companies must adhere to established, prior communication practices regarding timing, content, form, and distribution.
Social media activities can be continued, for example, if the company had them in the past. If you haven’t even set up a Twitter account, forget about setting one up during this timeframe. The U.S. Securities and Exchange Commission scrutinizes all PR and communications activities. Getting ahead of the IPO allows you to develop and execute a more aggressive communications approach well ahead of the S-1 filing so that your activities don’t completely cease.
Stay in the limelight
*This tip was provided by Alice Hall, Co-Founder & Creative Director at Rowen Homes
IPOs with a lot of media coverage typically do better. Create a comprehensive list of media and influencers whose interests coincide with those of your investors. Of course, there are obvious targets like MSNBC, Bloomberg, and the Wall Street Journal, but don’t ignore other opportunities to attract attention. Engage Wall Street commentators, industry experts, bloggers, trade magazines, and regional business publications in the city where your company is based. Of course, there was a TV on the trading floor the day of the IPO as well.
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Pay attention to brand visibility
*This tip was provided by Angus Chang, Founder, and Director of iupilon, and Hextto, a digital marketing agency
You should plan ahead before filing anything. Public relations must generate buzz for the company and keep it in the public eye. In most cases, legal will limit all visibility once a filing has been made. Some legal teams maintain the same level of visibility even after filing paperwork, while others are highly conservative.
When a company that hasn’t been visible suddenly tries to bang the pots and pans, scrutiny ensues, which is why your runway for brand visibility must be built and nurtured from the beginning. Provide legal review rights for thought-leadership articles, press releases, and ongoing marketing efforts.
Systems matter
*This tip was provided by Kelley Van Boxmeer, Co-Founder/ CEO at Motion Invest
Your PR, investor relations, legal staff, and senior executives should work closely together during the planning stage and have established and approved procedures. There is no room for error. After the IPO, your systems should be reviewed and maintained so that everyone can clearly understand ownership and permission chains.
Establish a compelling company narrative
*This tip was provided by Dan Close, Founder & CEO at We Buy Houses in Kentucky
To gain a competitive edge, your story must be strong and complete at least 12 months before an IPO. It’s crucial to inform tech trade reporters, vertical market experts, and industry analysts. Your story’s wording will be utilized in the prospectus, boilerplate for the business, website, advertising, new business propositions, and social media. The master of consistency!
Imagine that your website is the only one that can talk
*This tip was provided by Rene Delgado, Founder & CEO at Shop Indoor Golf
If no one can discuss your plans, then your website had better be prepared and useful. Showcase your company’s history, case studies, client success stories, and frequently asked questions here. Make it simple for interested parties and the media to get in touch with the appropriate authorized PR and IR contacts. To display all earnings announcements, earnings calls, and related material that investors will want and need, make sure your website is IPO-ready.
Pre-IPO banter is a no-go
*This tip was provided by Steve Pogson, Founder & E-commerce Strategy Lead at FirstPier
Employees and spokespeople are generally forbidden from discussing the possibility of going public with anyone. This is particularly crucial since it may be interpreted as a breach of SEC regulations if the media at any time, but particularly during the quiet period, publishes a direct quote from management concerning this talk. Anything you say might be covered by the media. Anyone speaking on behalf of the company must follow a pre-approved and well-rehearsed growth tale, according to PR pros.
Before shareholders, your staff shouldn’t have access to sensitive information. To prevent even the appearance of insider trading, make sure they comprehend the regulations completely and lead them through the new procedures.
Be careful in quiet. Once a firm files to go public, the IPO hinges on the stock market and timing. PR teams will focus on “normal” activities during this time. All communications should not contain forward-looking statements, future plans, or forecasts about the company’s worth or performance (even if this has been past practice). IPO cannot be mentioned, and interactions are limited to non-financial business matters. While this appears obvious, a business writer who interviews the company’s CEO and includes financial details in coverage can be perceived as enhancing the stock’s value pre-IPO. Companies are normally cautious during the Quiet Period and have all communications vetted by their general counsel before proceeding.
Andrej Kuttruf, CEO of EVAPO
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