First revenues have given way to cashflow positivity and possibly even to outright profitability. All of a sudden, audiences both inside and outside the company can’t seem to talk about anything other than that next big step: the IPO.
We are all familiar with the image of a triumphant leadership team ringing the bell to open trading, flanked by green, upward-facing arrows and cheering friends and family. But we are also aware of examples where high hopes and optimism seemed to crash headlong into the brutal reality check of institutional investor scrutiny during the IPO roadshow.
To increase the chances that your IPO becomes the crowning achievement that kicks off the next phase in your company’s history and positions you for success in the aftermarket, there are clear steps that can and should be taken two years or more in advance of listing day – well before the formal IPO process and the accompanying Quiet Period that effectively locks practices and precedents in place.
1. Build an impactful investment story oriented toward public equity investors
The investment story is more than a pitch deck to be flipped through during roadshow 1x1s or the lengthy written narrative in “the Box” of your S-1/F-1 filing – it is the lens through which the company is asking investors to assess its fundamental value and merit as a prospective investment. As such, development of a compelling, impactful, and effectively deployed investment story should be at the absolute core of IPO preparation.
The elements of an impactful investment story succinctly communicate such attributes as your company’s market opportunity, industry position, growth strategy, capital allocation priorities, financial strength, and competitive differentiators, while providing an understanding of earnings prospects and the trackable milestones that lay ahead.
Too often, aspiring public companies get far down the IPO path with an investment story driven by charisma and a big idea, but lacking the conciseness, specificity, and rigorous stress-testing required to pass muster with an institutional investor class that takes pride in putting aspiring issuers through their paces.
Similarly, when companies look to their organizational meeting as the kick-off to the IPO process – rather than an advanced stage in the process of going public – it can fall to the deal team to step into the void and produce an institutional investor-ready story more or less from scratch.
Instead, from the earliest feasible stage, companies should hold their investment story and those delivering it to the higher standard expected of successful public companies.
The investment story needs to credibly and impactfully answer a number of critical questions for a highly diverse audience of investors, including but not limited to the following:
- What is the company’s key value proposition and width of its competitive moat, such that it can both build and maintain profitable market share?
- Why are this leadership team and bench of talent best suited to successfully unlock this value, and are robust corporate governance policies in place to effectively align interests and incentivize shareholder value maximization?
- What are the most relevant KPIs by which the company should be judged, and how is the company performing on that basis? If different than those typically used in the industry, why are the chosen KPIs better representations of successful execution and value creation?
- To the extent that the company is targeting a premium multiple or comping against a non-standard peer group, what is the clearly and compellingly argued rationale for that?
- What is leadership’s vision for the company in 1 year, 5 years, and 10 years, and what strategy leads from here to there?
- How will the IPO serve as the first step in an exciting next stage of value creation for new equity investors coming in through the IPO?
- What is the company’s anticipated growth trajectory, substantiated with both achievable goals and credible, tangible steps by which the company will reach them (i.e., not just a big TAM!)?
- To what extent do the company’s industry and business model make quantitative forward guidance possible or advisable? And if not, why not?
- Where does the company fit into the current market landscape, and what are its key competitive differentiators vs. its strongest peers and competitors?
- What are the key opportunities and catalysts ahead? Just as importantly, how is the company grappling with the key challenges on the horizon?
The answers to these questions will be the core of the investment story in all of its forms, but importantly will also be the roadmap for “the Box,” the key summary section of the S-1/F-1 that is easily the most-read portion of a company’s IPO filing documentation. External IR advisors can and should play a central role in crafting and polishing this critical text well in advance of an aspiring issuer’s organizational meetings and wider prospectus drafting process.
2. Leverage a team of key advisors early on as you build your deal team and public company infrastructure
Even for the largest and most capable companies, the IPO process is a behemoth undertaking that requires both staffing levels and specialized skillsets beyond those available in-house. While that deal team will eventually come to resemble a small army between the organizational meeting and listing day, securing a much smaller group of key external advisors during the earliest stages of IPO preparation can both increase the likelihood of a successful offering and save you considerable time and money. These trusted advisors will anticipate potential challenges, recommend strategies to obviate them, assist in the buildout of public company infrastructure, and provide valuable counsel before facing the bright lights of public markets.
They will provide invaluable support and counsel as you grapple with a number of foundational decisions and challenges, including but not limited to:
- Which banks are best suited to participate in the IPO from the perspective of deal execution, strategic advisory, sales, and after-market support?
- Which bankers have a demonstrated track record of sourcing, developing, and successfully executing M&A and other deal opportunities of relevance?
- Which banks’ research analysts are the most influential, and which are best positioned to produce high-quality research that appreciates and illuminates your company’s inherent value?
- Which law firms, accountancies, industry consultancies, and independent advisors active in the sector have a positive track record and a reputation that aligns with the company’s values and image?
- What profiles, skill sets, or even specific individuals would best serve the public company as board members?
- What specific processes, timelines, and practices that can be deployed early are conducive to effective public company quarterly earnings reporting? ’
- What types of institutional investors are best aligned with the company’s value proposition, and should therefore be the primary target audience of its investment story?
- To what extent is there a disconnect between how the company sees itself and how it is likely to be understood by disinterested third parties on the Street? How can that divide be narrowed before a public process is undertaken?
- Where have other aspiring issuers struggled in the IPO process, and how did they address those challenges?
- How can the interests and sensitivities of the company’s existing investors and non-financial stakeholders be protected and respected in the context of the company’s IPO disclosures and marketing?
As effective free agents within the capital markets ecosystem, the early participation of experienced external IR advisors can provide uniquely insightful counsel in navigating these and many other complex issues.
3. Develop a track record of “normal course of business” communications
With all due respect to the S-1/F-1 filing, an investor’s evaluation of an IPO is similar to countless other aspects of modern life in that the very first and sometimes last step of analysis is often a Google (or Bloomberg or ChatGPT) search and a rapid assessment of a company’s track record and image.
Once the Quiet Period has set in with the hiring of bankers, however, much of the public engagement that would go into establishing such a track record risks falling afoul of SEC restrictions, necessitating additional remedial filings and potentially setting back the overall IPO timeframe.
Both to establish a track record of “normal course of business” communications that can be sustained during the IPO Quiet Period and also to effectively test-run your public company reporting from the relative safety that comes with being a private company, prospective issuers should seek to transition their disclosure and reporting practices towards listed company standards well in advance of an IPO. These might include:
- Regularly disclosing key, non-financial developments as if you are a public company (e.g., key management hires, new product announcements, acquisitions, etc.)
- Aiming to participate in industry conferences, building your public profile while also setting precedents for ongoing communications and demonstrating successful execution and progress.
- Looking to engage with trade and financial media on a recurring basis to build your public profile, reach investors and other key audiences who would not typically follow your press releases or visit your website, and establish management’s stature as thought leaders in the industry.
- Utilizing select social media, such as LinkedIn, as an additional channel to provide company updates and announcements to the public.
External IR advisors with expertise in corporate communications and financial PR are ideally positioned to guide pre-IPO companies through the process of establishing “normal course of business” communications and media engagement that can persist through the Quiet Period and support the successful execution of the IPO.
4. Develop relationships with your industry’s sell-side analysts
Find out who covers your industry peers – and whose opinions carry weight on the Street – and get to know them. Whether or not these analysts will eventually cover your company, their research and commentary plays a key role in shaping investor expectations, in determining KPIs and issues of relevance, and in introducing investors in the sector to potential investment ideas.
As they seek to keep their readers apprised of the relevant context for the companies under their coverage, it is fairly common for analysts to reference or profile in their research notes select private companies active in the sector, or even to invite them to participate in a conference or webcast. This is only possible, however, if they are sufficiently aware of those companies and their merits.
Proactively engage with select analysts around major company and industry developments and establish a relationship as a source of insight and perspective on the industry. In addition to keeping your company top of mind for these key hubs of communication and information in the investment community, you are also likely to benefit from these relationships as a source of useful information on both industry happenings and evolving investor views.
Particularly in an era when institutional investors have streamlined their sell-side research relationships, external IR advisors are among a select few who are in a position to provide both sector-wide context on sell-side research and also to facilitate introductions to the most relevant analysts for your company.
5. Build relationships with investment banks
You don’t have to wait until there’s a mandate on the table to introduce your management team and investment story to the bankers who may one day manage your IPO. Focus on meetings with banks that have served as bookrunners, co-managers or otherwise participated in relevant deals. Learn about their after-market support, institutional and retail distribution, industry experience, and the market influence of their research analysts. To the extent that these banks host investor conferences of relevance that also allow for the participation of select private companies, actively pursue participation in investor 1x1s, presentations, and relevant panel discussions to build the profile and credibility of the company and leadership.
It’s also not too early to solicit informal and preliminary input and, when appropriate, formal recommendations and proposals related to timing, size, structure, and valuation for an IPO. Banks often have impressive analytical capabilities that they’re all too happy to demonstrate in pursuit of a potential deal mandate – don’t be afraid to ask them for just such a demonstration on a topic that matters to you.
External IR advisors can be uniquely helpful in this instance as well, leveraging a familiarity with the capabilities, reputations, and track records of the investment banks beyond what any single company would typically be in a position to have.
6. Test the waters with the buy-side
Well before the IPO roadshow or even prior to filing a registration statement, SEC Rule 163B provides private companies with an avenue by which to “test the waters” (“TTW”) with sophisticated investors. Whether an IPO is a near-term likelihood or a long-term aspiration, these meetings offer a unique opportunity to better understand how public market investors respond to your investment story, to evaluate where tweaks may be appropriate to your delivery or to the story itself, and to get a better understanding of how the book will ultimately come together while there’s still time to do something about it.
In addition to purely opportunistic meetings and conference participation, proactively undertake an institutional investor targeting exercise to identify the investors who most actively invest in your industry, thematic exposures, and fundamentals, and who also represent the profile of investor that you aspire to have. With the help of an IR advisor, make contact with these investors, ascertain their willingness to engage on a preliminary, pre-IPO basis, and look to arrange a 1×1 meeting or call. Even where a TTW meeting does not ultimately occur, this exercise serves to put your company on the radar of your highest-priority institutional investor targets and primes them for subsequent outreach during the IPO roadshow.
Prior to any such meetings, management should undergo training on RegFD and what constitutes Material Non-Public Information, as selective disclosures of MNPI in the context of a TTW meeting will typically create an obligation to promptly file an 8-K or issue a press release, just as would be the case for a public company.
Because they regularly engage with a wide range of investors outside the specific confines of a deal process, in addition to banks, external IR advisors are well positioned to both guide and facilitate these TTW meetings and to make the most of those interactions to inform prospectus drafting. IR advisors can work with management in honing the delivery of the investment story and responding to challenging questions.
7. Don’t lose sight of the big day…or the days after that
It can be tempting to imagine that an IPO is the final, glorious culmination of a company’s development, and the pomp, circumstance, and TV cameras accompanying the listing day do a great deal to support that view. When there is an active process to coordinate and actively pursue media opportunities around the listing day itself, few opportunities in the lifetime of a company are so conducive to high-impact media coverage (e.g., a CNBC interview, a quote from management in the Wall Street Journal, etc.) that can bolster your credibility in front of the widest possible audiences.
At the same time, it is critical to remember that – while special and important – the IPO is not an end in itself, but a moment of transition to life as a public company and ongoing trading in the aftermarket.
With the initiation of deal analyst research promptly following the prospectus delivery period and the initial public company quarterly earnings call already on the near horizon, the immediate obligations of post-listing life are too time-consuming and portentous to only engage with after the IPO. From variations in accounts receivable, to auditor timelines, to the impacts of seasonality, to preparing for likely questions to be received on an earnings call, to the interplay of your results with any forthcoming public commentary from customers, partners, and competitors, countless factors go into effectively reporting, guiding, and contextualizing your results. This needs to be deeply considered, planned, and practiced well before the IPO.
In fact, it is critical during the entire IPO process that company leadership maintain a consistent focus on not just pricing the deal and bringing attention to a successful offering, but ensuring that the entirety of the deal process has remained in service of the company and its stakeholders’ interests in the days, months, and years after the listing.
A successful IPO is a momentous occasion for any company, and it’s important to spend those fleeting moments on the bell podium taking it all in. Once that bell stops, however, it’s time to get right back to work.
Welcome to life in the public markets.
Together, these early steps lay the foundation for a successful IPO and life as a public company. With proper planning and the right advisors by your side, you give yourself every opportunity to navigate the IPO process efficiently, effectively, and in a manner that provides solid momentum to the next stage of your company’s development.
To learn more about how IGB Group can provide you with the tools, insights, and support to achieve your strategic goals pre-IPO, during the IPO, and as a public company, reach out to Leon Berman at lberman@igbir.com.
