The London IPO market is almost back to its pre-recession levels again as investors grow a little more bullish and more confident in UK and world economies.
However, things have changed since the last boom, with investors seemingly much more cautious this time around. Many companies came to market before 2008 that really shouldn’t have been able to raise capital publicly at all. Having lost their shirts in the last boom, investors are looking more closely at companies up for IPOs to more thoroughly ascertain their likelihood of success.
Based on this new reality, here are five key communications points for your enterprise to stress as you move towards an IPO.
1. Is Your Company Going to Grow at the Pace You Say it is?
There are three main parts to this:
- Is your market growing?
- Can you realistically gain a decent chunk of market share?
- Do you or will you (after IPO) have the financial clout and leadership acumen to garner that market share?
The last point, above, is the real intangible. If you have a CEO and others on your team who have a track record of success, your chances of the IPO succeeding are far higher. Demonstrate that you’ve delivered solid ROI either to earlier private investors or in prior enterprise, and you’re well on your way to success. More on this below.
2. Risk Assessment and Abatement
IPO prospectuses have a risk section in which common “kitchen sink” language is correctly placed for legal reasons. But investors want to see far more. They want to see that the team have looked into their crystal ball and can envision and overcome future challenges.
Three scenarios that leadership may want to address:
- Market changes: price changes, demand fluctuations, other factors;
- Competitor threats;
- Production or similar operational issues.
Many companies like to paint a rosy scenario post-IPO, one in which all problems are solved by the influx of public money. But investors want to see proactive thinking on the part of leadership, and ways in which the team will overcome potential threats and problems. Best to depict these scenarios openly and demonstrate how you’ll overcome them.
3. The proof is in your track record
Having a track record of returning money to investors can sometimes overcome the most hardened cynicism of many analysts and investors when they look at your business plan. If you as CEO or other members of your team have had success either in your current enterprise or in businesses in the past, ensure that this is front and center when presenting to potential shareholders.
Investors see claims for the next Facebook, Google or the cure for cancer every day. They will look at your pro forma financials and draw red lines all over them. But bring in evidence of business accomplishments of the past and you’ll sway a lot of skeptics.
That’s not to say that the rest of your business plan doesn’t need to be sound. You will need to be able to back up what you’re explaining with solid arguments. But show that your team has made money for other investors before now, and it will help an awful lot.
4. Is your team the right one to lead you into the next phase of business growth?
Raising a significant amount of public money usually moves a company into a new phase of its development. Not only does the company have a large pool of equity capital to deploy but it is also in the public eye perhaps for the first time.
There are endless scenarios here.
Perhaps you are expanding into new geographical markets and need expertise in execution. Or perhaps there are opportunities to improve your product with a view to more revenue per order. Or maybe the end market is changing and developing and you need to be able to be flexible in product development, end-product delivery or an endless array of similar issues.
Have you as CEO thought through all these new management and leadership challenges? Do you need new talent on the team to reflect the changing nature of your business world? How much change is actually needed vs. continuing the successful culture you already have in place?
Think these through and make changes that are required. But know that having the right team and communicating that fact to investors is crucial
5. Predict the Future
It’s always wise to forecast the future in as realistic way as possible. Analysts make their living predicting the future and you don’t want them dictating what they think your future will be. Detailed and well-thought-out future scenarios developed by the company are key when communicating the upside to potential investors.
The more detailed and reasonable your pro forma financial statements are, the more likely that investors will look at both your and analysts’ expectations for the business. You need to be able to communicate your position cogently and persuasively so delve into the details and map out all scenarios.
Also, become familiar with what the analysts and investors are projecting about you. Ensure you address all possible downside situations. It’s the only way to be prepared for the full gamut of questions that come your way on the roadshow or in other investor conversations.
Concise and clear message development is crucial for a successful London IPO. Employing the skills of both your broker(s) and your financial PR agency to help hone this messaging will go a long way in helping your IPO bear fruit.