August 2015 has proven to be a very difficult month for investors in most international capital markets. Oil prices here declined to six year lows, European markets were impacted by fears of the breakup of the Euro, China’s economic slowdown has been more pronounced than even the most bearish of commentators, and GCC stock values have collapsed in line with their global counterparts.
As a private company, why would you want to list your shares on the stock market when conditions seem to be so poor? Markets can be cyclical, and during times of uncertainty, volatility increases in the short term. The key to listing a company, however, is having a long term vision and strategy which smooths out short term volatility and delivers value to shareholders over the long term. Whether market conditions are strong or weak, investors constantly seek individual stocks with strong fundamentals and long-term growth prospects to maximise their returns. A company seeking an initial public offering (IPO) can bring a welcome breath of fresh air to markets which constantly seek new investment ideas, particularly if that investment story is compelling and communicated effectively to the investment market. An IPO transaction can be a major catalyst into driving the value of a fast growth business, broadening its ownership and shareholder base, whilst also generating liquidity for its stakeholders.
After a fairly uneventful first quarter of the year, the MENA region has seen a steady increase in the number of IPOs during the second quarter, with a total of nine transactions, raising over $2.1 billion, a 92 percent increase compared to the same period last year.
For businesses seeking an IPO, the following is a 10 point checklist prior to embarking on the path to becoming a listed company:
1. Plan ahead
The process from being a privately owned business to becoming a publicly listed company is one of the biggest changes to any business, and it needs to be planned very carefully. This will include planning for the establishment of appropriate processes and procedures, particularly on auditing of accounts, through to the operating structure of the business. Prior to approaching the relevant regulatory authority for your plans to IPO, your company needs to be as sufficiently compliant as possible as a prospective public company.
2. Controlled disclosure of information
Before a formal announcement is made to communicate the company’s intention to list – which is subject to approval from the capital markets authorities – ensure communications are controlled and adhere to market regulations. Through media and presentation training, spokespeople need to be briefed and coached on what they can and cannot say from the beginning of the IPO process.
3. Establish a ‘normal and customary’ flow of communications
As a private entity, it is never too early to open communication channels with key participants in your chosen capital market and to begin building a strong public image. This includes promoting the organisational changes you have made to the business in order to build the right platform for growth –as well making the business more compliant with listed company regulation – as well as communicating the growth strategy and the progress the business is making with that strategy. Once advisors are appointed and the IPO application is filed with the capital market authority, all of your external communications will be highly regulated and legally binding not only to the company but also, in some cases, with directors of the company being personally liable to what is stated publicly.
Ideally, regular PR outreach should start at least one year before the filing date. A strong public profile will help generate interest from both retail and institutional investors in the run up to the IPO.
4. Think, act and perform like a public company
Beyond implementing mechanisms such as structure and accounting principles of the business, act like a public company before going public. A robust public image cannot be achieved overnight. Your communications advisers will build a strategy which is in line with your business strategy and help you manage the communications flow to ensure optimal results. The implementation of the communications campaign should effectively build your profile with investors – both institutional and retail – and those who will influence the investment decision such as financial media, industry publications and financial analysts.
Public companies need to adhere to good corporate governance procedures, with the correct balance of executives and non-executives on the board (including independence), transparent financials and a clearly communicated growth strategy.
5. Team IPO – marketing, advertising, communications
Designate one executive (or a devoted team) to manage the execution of the IPO communications campaign. Whether an internal or external appointment, the project manager needs to approve all communications materials before being released to the public to ensure they comply with capital market regulations and are in line with the company’s core messages. If the offer is heavily reliant on the subscription of retail investors, the IPO candidate will need to invest in advertising which will need to be carefully managed in tandem with the financial communications programme. You should also consider investing in an investor relations-compliant website which can serve as a powerful communications channel for your target audience.
6. Communicating your equity growth story
Through roadshows, press releases, media interviews and analyst briefings, you should be in a strong position to articulate your company’s growth story. Beyond the prospectus, the investor presentation is the key collateral for the IPO process – it needs to have dynamic yet clear and simple content, and it needs to be delivered effectively. The drafting and rehearsal of this aspect of the IPO process can make the difference between success and failure of an IPO.
7. Follow the publicity guidelines set by the capital markets authority
What is perceived as misleading information or the leakage of “price sensitive” information can lead to punitive actions taken by the respective market regulators, and can even result in having your IPO application declined. Avoid any forward looking statements and disclosure of information that has not been included in the prospectus, unless ratified by your lawyers and financial advisors.
You should aim at communicating a clear investment case to generate investor momentum for the upcoming listing, however, all communication needs to adhere to market regulations. It is extremely important for all spokespeople to strictly follow the publicity guidelines set by your communications advisors, lawyers and investment bankers to minimise the chances of disruption during the IPO process.
8. Profile the expertise of the management team
The investment community wants to know whether the management team has the right experience and capabilities to take the company to its next stage of growth. This will show investors that the company is well governed and likely to demonstrate sustainable returns and the building of shareholder value. Therefore, the corporate communications campaign should thoroughly demonstrate the strength of the business, as well as best practice on corporate governance to ensure that shareholders are represented appropriately on the board.
9. Communicate internally
Transitioning from a private entity to a public company can be a significant distraction for all employees. Employee communications should therefore be timely, in line with external announcements, and identify the impact that the IPO will have on the company’s culture and day to day activities. It must be remembered that each and every employee is an ambassador for the company. Therefore, they need to feel they are participating in the successful transition of the company from a private to public entity. Employees will also need to be educated on which information is regarded as share price sensitive and how that information should be disseminated.
This is particularly pertinent when dealing with media enquiries, all of which should be channeled through company representatives who are nominated and trained for this role.
10. Have a leak strategy in place
The investment community and the media are always on the lookout for the next IPO story. Ensure company spokespeople are not taken by surprise and are prepared to respond to potential market rumours or internal leaks about the IPO. Your communications advisors should prepare a public statement for you to use if confidential IPO information leaks to the market and will help you respond appropriately to questions and queries about the IPO.
The IPO is only the start of a company’s journey to using the capital markets to grow its business. As a listed entity, the company will have an obligation towards new, existing and future shareholders to communicate on a regular basis and in accordance to the stock exchange disclosure regulations. A company which communicates its investment case effectively to capital market audiences will attract quality investors.