After a decade of sitting on the sidelines, with ample access to private capital, scores of firms, including the more than 500 ‘unicorns’ – companies with $1 bn+ valuations – have begun to actively contemplate or take steps to enter the public markets.
Going public is a transformational event for any company, opening access to capital that allows the company to invest in future growth, attract new talent and raise its profile, while providing liquidity to investors and employees. In addition to the traditional IPO, growing numbers of businesses are going public by merging with special purpose acquisition companies (SPACs). SPACs raised $83 bn in 248 public offerings last year and activity has continued apace in 2021. At the same time, a small number of companies have chosen the option of a direct listing for their shares.
Given the dynamic environment, complex requirements and newly emerging expectations of stakeholders surrounding public offerings, management teams and financial sponsors need to plan and prepare well in advance. Extreme care is required to determine the best path and to successfully execute a transaction to enter the public markets. Leadership teams must deliver a clear and compelling investment thesis to Wall Street, leverage the financial media for visibility, prepare the organization to operate as a public company and develop thoughtful plans on ESG matters, among many other steps.
Among the key factors executives and owners need to consider are:
Whether your company ultimately goes public through an IPO, a SPAC or a direct listing, you need to be ready and well positioned for any opportunities as and when they arise. You’ll need to develop clear, precise and nuanced capital markets, investor and public relations strategies to help ensure success.
Here’s what you should know about each path to going public as you consider your next steps.
IPOs The IPO path affords companies the opportunity to build an investment bank underwriting team that is committed to the transaction, provides sales and marketing support to its clients and commits to ongoing analyst research coverage. Simultaneously, the process typically takes longer than other options, and forces outside the company’s control can create uncertainty about the eventual outcome and ultimate valuation.
Experienced communications professionals can help companies develop comprehensive IR and PR strategies, build awareness well in advance of the offering, conduct ‘testing the waters’ (TTW) meetings with investors, help select the right banks and investors, hold investor education meetings, tell a strong ESG story and make the listing day a brand-building event.
A capital markets adviser is critical in selecting the right investment bankers to form your syndicate and advise on the rapidly changing terms for IPOs. While bankers will serve as the main advisers in planning and timing your IPO, organizing the roadshow and setting valuation, a capital markets adviser plays a vital role in orchestrating the process as well as in key considerations such as lock-ups and dual-class stock structures.
Developing a strong, clear and consistent message is critical, too, and should take place well in advance. A solid IR strategy will allow you to build important relationships with key analysts and investors well before your IPO and position the company for success once the deal closes.
SPACs A SPAC raises money through an IPO with the sole intent of acquiring a private company, and offers a quick, flexible and transparent process for owners and investors alike.
Unlike IPOs, these transactions involve merging with a public company, so they don’t entail the same limitations on communications. Companies can market more vigorously, provide forward-looking projections and actively tell their story to investors and the media.
For investors, that means greater transparency and opportunity to interact with management as the company seeks shareholder approval. SPACs also offer advantages to target companies, including more price certainty.
Like anything else, however, SPAC transactions have trade-offs as well. They typically lack the robust sales forces and client networks that underwriting bank syndicates tap to market IPOs. They tend to be more dilutive to existing shareholders than IPOs, and there’s no guarantee that a firm using a SPAC will attract near-term analyst coverage.
While IPOs require a ‘quiet period’ after a company registers its offering, SPACs are able to actively promote their transactions, which calls for a carefully planned communications strategy.
IR and PR professionals can help companies using SPAC deals get their messages out, targeting retail and institutional investors, starting with the all-important initial announcement and executing a proactive marketing campaign through the media and other channels in the days and weeks thereafter.
Direct listings While less common, direct listings present a more simplified avenue for companies to provide liquidity to current investors by listing existing shares on a public stock exchange without using underwriters. Management may also avoid the ‘IPO discount’ used to attract institutional investors in IPOs.
To execute the transaction, a company files a registration statement with the SEC, may conduct TTW meetings, goes through a quiet period and can then hold investor roadshow meetings and an investor day. Investors may sell their shares once the registration is declared effective, with share price determined by buyers and sellers, rather than an underwriting team.
SPACs and direct listings can webcast investor events to reach far broader audiences than traditional IPOs, with both deal types placing greater responsibility on companies to educate analysts and investors. Whatever route you choose, the end result is you’ll be a public company, with all the new requirements, scrutiny and high-stakes communication implications that entails.
ICR’s team of communications and capital markets professionals has advised nearly 1,000 companies – including more than 100 since January 2020 – across all three pathways. To learn more about the role communications and advisory can play as you contemplate going public, please get in touch.
Lee Stettner, Co-Head, ICR Capital lee.stettner@icrcapital.com
