PR Week: Open Comms Strategy Vital to Achieve Highest IPO Valuation
JEFF CORBIN, KCSA STRATEGIC COMMUNICATIONS
KCSA Strategic Communications conducted a survey of attorneys who advised on nearly all major IPOs in 2012 to gauge their thoughts on how the IPO market for 2013 is shaping up. The main takeaway this year, is that uncertainty in the economy is dogging IPO enthusiasm but opportunity still abounds as a result of the JOBS Act.
The JOBS Act became law in April of 2012 and, in part, allows for emerging growth companies (those with revenue under $1 billion) to file for an IPO confidentially until 21 days prior to a roadshow for the offering. From a transparency and communications standpoint, this would appear to be a win for companies that wish to avoid the hype of an IPO similar to Facebook's last year. It would also seem as though Congress has retreated from its compliance dictate in Sarbanes-Oxley, at least with respect to smaller companies (if you consider a company with revenues of $1 billion to be small). Under the JOBS Act, companies now have the ability to test the market's appetite on how investors will value their company and even go so far as to pre-market the offering.
The question necessarily begs itself: is this a good thing for the IPO market and the markets in general? In my opinion, the answer is yes and no. It is a good thing if more companies consider reaching out to the public markets for capital, as this breeds the liquidity that the markets have been yearning for since the recession began in 2008. On the other hand, it is not a good thing if companies use the JOBS Act and ignore their ongoing obligations to transparently communicate with Wall Street.
Companies considering IPOs need consider one important principle. It's one thing to go public at a certain valuation; it's another thing to sustain that valuation in the aftermarket. What a company says about its growth opportunity, how it communicates it, and to whom it communicates its investment proposition, is what ultimately determines how the investment community will value that company. Facebook is a perfect example. The company's valuation today is down 35% from its IPO valuation. And this can be directly attributed to the company's failure to communicate with greater specificity regarding its growth strategy and opportunity.
The JOBS Act should therefore not be viewed as an excuse not to communicate. Rather, regardless of whether a company files for an IPO confidentially or not, it still must communicate openly to achieve the highest, fairest and most appropriate valuation.
Jeff Corbin is Chief Executive Officer of KCSA Strategic Communications. He has lectured in the U.S. and internationally on building relationships with Wall Street and is the author of the book, Investor Relations: The Art of Communicating Value (Aspatore Books; May 2004 and February 2011).
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