VICTORIA GEDDES, ECECUTIVE DIRECTOR
The various high profile successes and failures of new listings since the IPO window re-opened in mid 2013 is salutary reminder that there is no such thing as a safe bet when it comes to investing in the equity market. As we look ahead to 2017, there is already a crowded pipeline of IPOs including those that have been deferred due to market volatility in the closing months of 2016.
So it seemed timely to review our playbook for IPO investor relations, to highlight just what it takes to maximize your chances of a successful IPO, particularly in that first year of listing. Here are our top 10 Investor Relations tips for corporates:
1. Listing is Day 1, not the Grand Final – be prepared
ASX listing can easily be confused as the end of a hard and unforgiving IPO process, rather than heralding the beginning of a corporate transformation. While the management team will welcome respite from marathon meetings with lawyers, accountants, bankers and corporate advisers, it is important to keep in mind that there will not be a return to business as usual.
Moving a business from private to public status affects every aspect of how a company, and those who run it, operates. Investor relations and market engagement consumes, on average, 40% of a CEO and/or CFO’s time over the course of a year. So if you are contemplating listing, you need to have your game plan ready to go as soon as your company’s first trade is executed in the secondary market.
2. Develop your IR website
Your website is arguably the most important vehicle you will have to communicate with investors, so make sure it has everything that investors need and expect. It should ideally be investor ready to go live on the day you list, uploading content such as ASX releases, annual reports, market briefings and statutory financial reporting as well as carrying a range of investor information on stock trading, company contact details and links to the company registry. Most importantly there must be the resources and processes in place to keep it up to date.
3. Create a disclosure policy
ASX recommends that companies have a written continuous disclosure policy which ensures that market sensitive information is promptly released to ASX. Decide in advance who will be the primary point of contact for investors and analysts, and set up delegation frameworks around a very small group of senior executives (to ensure message consistency ) to deal with enquiries from media and other external stakeholder groups. Someone should respond to all calls as soon as possible, but most definitely within 24 hours.
It is also advisable to include a social media policy given the emerging application of social media to investor relations.
4. Board – Shareholder Engagement Policy Guidelines
Institutional shareholders are increasingly regarding direct communication with the board as an integral part of their ongoing engagement with the company. Companies should therefore put in place a policy that determines which investor queries are appropriate to elevate to the board and under what circumstances it is more appropriate for directors to take the lead in reaching out to shareholders.
Matters relating to corporate governance and appointment of the CEO are both areas of board responsibility, including engaging with major shareholders well in advance of the AGM to discuss important resolutions that require their support. Ensuring directors are well prepared for these meetings with detailed Q&A and a clear understanding of which questions are more appropriate for management to address.
5. Guidance – what will or won’t you say about Outlook
We have written about this at length in previous Insights as it is a subject that creates a great deal of debate.
In our view a board approved guidance policy is a must have given that, under ASX listing rules, if you don’t provide discrete guidance you are deemed have delivered earnings guidance which includes prior period earnings as a proxy for future periods and broker analyst forecasts. It is also clear that if an information vacuum exists, someone else less informed will fill it for you.
For companies new to the market, while your PDS forecast is your ‘year 1’ earnings guidance, consider also providing more qualitative, directional information based on particular operational, financial or economic metrics. It is important to think carefully about this as once you have started down a certain path it is difficult to pull back – but never choose to say nothing.
6. Determine who has responsibility for the Investor Relations function.
Some companies use internal investor relations officers, some outsource the function to an investor relations consultancy, and some use a hybrid model. Determine the model that will be most effective for you but don’t make the mistake of assuming that Investor Relations takes care of itself as long as someone is merely distributing ASX releases to the media and analysts. The Australian market moved well past that as a proxy for IR many years ago, recognizing the strategic role played by investor relations in building shareholder value.
7. Have a plan to grow your shareholder base.
The shareholders that join your register for the IPO are unlikely to be there for the long term and in some cases will sell immediately after your stock starts trading. So from day 1 your register will be in a state of constant change, responding to the fluctuations in the market, the performance of your business and that of the industry it is part of, as well as its inclusion in various market indices.
It is important to keep track of these changes on your register but also take some control of this process by looking ahead to where the company will be in 2-3 years time. To grow your shareholder base and build value in your stock, it is important to be targeting the right investors for your stock and actively getting out on the road to meet them. This is about building relationships for the long term and having the patience to keep telling your story over and over again. Your IPO roadshow is not the end of your meetings with investors, it’s just the beginning.
8. Prepare the executive team and employees for ‘life after listing’.
The transition from private to public company status can come as a huge culture shock for both senior executives and employees used to operating in an environment beyond the public gaze and subject to intense scrutiny every 6 months. The communications function, and the policies that support it, is central to this change as employees need to understand why the level of corporate-wide communication may change, and why it is essential that sensitive information is quickly communicated to the executive team and does not leak into the public domain. We strongly recommend that your corporate counsel, internal IRO or IR firm conduct small workshops with groups of employees to ensure that they understand basic responsibilities that come with being employed by a listed company and the serious ramifications of insider trading.
9. Know the rules of engagement in dealing with the market
Investors and broking analysts are paid to provide insights into a company that others do not have. This will often involve targeting customers, suppliers, competitors and occasionally middle management executives to gain information about your company – it is a legitimate process and essential part of the role broking analysts play to gain an edge on their competition. It is vital therefore that a company ensures there is a high level of understanding on its disclosure policies (See Tip 3) in order to avoid selective disclosure. If senior executives have never worked for a publicly held company, they should also be trained in IR best practices relating to conference calls, IR presentation, one-on-one meetings and other investor interactions.
10. Continually improve presentation and media skills
Institutional Investors place a lot of emphasis on management’s style, including in some cases learning the basics of how to read body language. It is important to present confidently and be well prepared which, particularly prior to the IPO roadshow, involves the management team undertaking presentation coaching. Even the most experienced CEOs and CFOs of top 100 companies continually hone their skills so that they are equipped to effectively communicate the company’s story to potential investors. The most important component of this coaching is preparation for questions from investors. Develop a comprehensive Q&A document and make sure that every management team member is able to answer each question flawlessly.
So make sure that you have positioned your company to be successful in investor relations. We know that most institutional investors believe the quality of a company’s IR program influences its valuation. Much of that relates to the trust established with the investment community early in the IPO process by being open and honest, ensuring that there are no unpleasant surprises and that you are responsive to investors’ needs for timely and truthful information.