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.
4 IPO Steps
Typically, an IPO involves 4 main phases:
The company prepares reports, evaluates the financial condition and efficiency of the company. This phase can take several years.
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.
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, dividend policy are determined.
From the application book, some shares are distributed to investors. Then the stock market trading begins.
In all these stages, public relations for the IPO occupies a significant niche. It involves a radical restructuring of the strategy of relations with society: from limited contacts on single news occasions to open, frequent communication with all key audiences that affect the efficiency of the company. 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.
What IPO Marketing is Needed For
After going public, the company becomes more transparent to investors. 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 brings 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 affect the price of the securities of the future issuer.
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 of the IPO can be divided into four main phases:
- Preparatory stage with research and identification of the basic 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.
Directions IPO Public Relations Works With
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 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, separately — analysis of rumors, negative information, the context of references.
Therefore, it is important to start cooperation at least a year before the expected release to launch a chain of information reasons, an “information wave,” to reach all target audiences, establish communication with the media, and make adjustments to the program necessary.
Several sociological procedures are involved here:
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, opinion leaders). In essence, PR here performs an IPO marketing function: to increase fame, cause “appetite” and excitement among investors, initiate a sound wave, forming 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 TV, 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 shares growing after placement 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 after the start of trading fell by 20% and recovered only a year later.
- Xiaomi — in 2018, shares were listed at HKD 17.6. Two years later, securities were traded 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. The broker will take several percent of the transaction amount for the right to participate in the placement.
Threats to IPO Public Relations
First of all, you need to take into account that bad news is always more interesting than good news. And negative information is believed more willingly than positive. The very fact of negative or incriminating information that appeared during this period already makes you think about investing.
Adherence to the topic of openness, transparency, etc., leads to falling into the trap of public attention when small or large problems of companies previously unknown to the market go out. For example, an intra-corporate conflict through “top management – team,” previously not interesting to anyone, can easily become public and at times characterize for investors corporate governance in the company.
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 increases. 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 with high potential returns.