Analysis

Spotlight On: IPO Communications

Rachel Farrington, CFA

Flights may currently be grounded, but the pandemic hasn’t stopped the UK IPO market from making a flying start to 2021 – its best since 2006.

High profile names have been priced at the top of the range and have performed well in the aftermarket, with ‘Intention To Float’ announcements continuing to come in thick and fast. Clearly, for many businesses, there is a feeling that their time has come.

With this in mind – and based on our own IPO experience in recent years – we have outlined six key considerations for any company thinking about a potential flotation in the current climate:

1) Getting media engagement right

Given the sensitivities surrounding disclosure, deciding when to engage with the media can be a balancing act for any business mulling over a potential IPO. Profile-raising articles can indeed be helpful when it comes to brand awareness and education of potential investors, however these can also come with the risk of information leaking out before you are ready. A carefully crafted media strategy is therefore very important. Having a leak strategy in place early – and reviewing it as the process develops – can ensure key messages remain consistent throughout.

For those able to plan well ahead, subtly raising the profile of a business in the media long before any start to listing proceedings can also ensure continuity of message and mean complex or controversial issues are better understood. Educating the audiences who will be providing the most scrutiny earlier on can help to head off potential reputational issues at the pass.

2) Managing expectations

Ensuring media expectations are managed appropriately is equally important:

Valuation. So much of the perceived success of the IPO will be attached to the price that is set, as well as the share price performance in the days and weeks that follow the IPO. So, although you may not be able to comment on valuation, some ‘background guidance’ can ensure final pricing isn’t seen as a disappointment.

Timetable. Give yourself room for slippage. The media will be watching, and any perceived delay will lead to questions and the potential for negative headlines.

Optionality. Letting it be known that an IPO is being considered or could happen at some stage is not necessarily a bad thing. However don’t overcommit, otherwise alternative options may be perceived as a failure.

3) Being prepared for increased scrutiny

Be prepared. An IPO is not just about the business, it is also about the people, particularly in founder-led businesses. As much attention will be paid to scrutinising individuals, especially those making money. Board members and in particular any new appointments, including the Chairman, will also be newsworthy and form a part of the investment case; their appointments can be an effective opportunity to enhance the investment proposition.

Private equity ownership will always lead to greater scepticism in the media. Are the PE owners selling down significantly? Is there a lock up? Might we see a sustained overhang post IPO? Is this about paying down debt rather than funding growth? Couldn’t they sell the business? Is this a dual track process? And so on. You will need to prepare for such scrutiny and demonstrate the track record of the private equity firm in previous IPOs where new investors have been rewarded.

4) Communicating beyond financial audiences

While the primary audiences of IPO communications may be the financial media, analysts and potential shareholders, with potential change comes uncertainty for other stakeholder groups. Employees, suppliers, customers and potentially policymakers will all need reassurance about what an IPO means for them. Getting buy-in from across these groups, particularly staff, is important to help drive the process and make a positive start to life as a PLC. It’s no surprise companies are increasingly going beyond a ‘business as usual’ message and articulating the benefits of a float for these groups in their external IPO communications. Engaging an ‘independent’ PR advisor can bring a wider perspective in this regard, resulting in a more holistic strategy which appeals to such groups.

5) Targeting retail investors in the right way

Historically, retail investors have been lower down the priority for selling shareholders, with many IPOs excluding retail investor participation. If you take recent examples such as Dr Martens, Moonpig and The Hut Group, this resulted in retail investors having to pay over 20% more per share in the aftermarket.

However, change may be afoot. An increasingly active army of retail investors are eagerly awaiting new companies to invest in, and technological tools and platforms enable them to have the same visibility and access as their institutional counterparts. Indeed, from a governance perspective, companies are increasingly expected to have a fair representation of retail investors on their shareholder registers. Lord Hill’s UK Listing Review has advocated that retail investors should be empowered and able to participate more easily in both IPOs and capital raises; subsequently, Deliveroo’s ITF described its plans to offer UK-based customers the opportunity to participate in its IPO, a move which will surely see others follow suit.

Tools such as Peel Hunt’s REX platform and PrimaryBid can facilitate such activity, and engagement directly with these investors is becoming ever more straightforward with firms such as Investor Meet, Mello Events, PI World and Proactive Investors facilitating corporate access in a virtual world, and targeted roadshow providers working with wealth managers to offer specialist bespoke programmes.

In addition, targeted media engagement across retail investor publications including Shares, Interactive Investor and Investors Chronicle can work particularly well when coupled with an effective digital strategy.

6) Staying alert to the changing regulatory backdrop

Lord Hill’s recently published UK Listing Review is a meaningful development not only for retail investors, and promises to bring new communications considerations for companies during an IPO process.

Commissioned to understand how the UK can become a more attractive environment for listed companies given the wider economic benefits, it contains a number of recommendations for the FCA to consider, with subsequent changes – where appropriate – ideally implemented by late 2021. As expected, IPOs feature heavily within the Review. Recommendations including allowing dual class share structures on the premium segment, lowering the free float requirement to 15%, rebranding and repositioning the ‘standard segment’ as a more flexible option and breaking the link between premium listing and index inclusion. All of the above would make the UK a more competitive arena for IPOs, particularly those with share structures which benefit founders or are less liquid. Removing the suspension requirement also opens the door to SPACs, which previously had shunned the UK in favour of the US or (more recently) Amsterdam.

However the FCA decides to respond to Lord Hill’s suggestions, communications during the process will be an important piece of the puzzle, particularly if there are more complex structures or additional stakeholders to consider.

The start of a new chapter…

Any IPO is the beginning – not the end – of life as a PLC, and a well-planned and executed communications strategy throughout the process can lay the foundations for your success as a listed company. After all, you never get a second chance to make a first impression.

Client experience

For further insights check out our recent #LockdownSessions video with our client Geoff Rowley, CEO of FRP Advisory, who we advised on its IPO – one of the largest in 2020