When an IPO Looms

Years ago, a friend told me about the experience she had when her company filed its IPO registration statement with the US Securities and Exchange Commission.

Even though she was the senior-ranking communications executive at her company, she was not informed about the registration decision until three weeks before it was filed. At that point, her job changed dramatically, and she had no time to prepare for it.

She was told by the company's CFO that their attorneys now had sign-off authority on all communications and she would have to modify the wording in all future company announcements. It took her a few months to learn that these attorneys really didn't understand the PR function. Their jobs were basically to ensure compliance, not optimize communication.

Much later, I asked her what three things she and her company should have done differently. Here are her answers:

"I would have educated myself on the IPO process at least one year before the registration process started."
"I would have worked to convince company executives that the corporate communications functions should be integrated into finance, marketing, sales and securities processes."
"I would have practiced being a public company, at least during the two quarters prior to our public offering. You have to learn to cook before you can start as a chef."

I have since heard this sage advice echoed from many other investor relations (IR) professionals. Let's discuss how a corporate communications professional could go about the business of learning more about IR, pitching IR to company executives and practicing IR processes before going public.

Round Out Your Communications Experience

The National Investor Relations Institute (NIRI) is like an IR graduate school and a great resource. NIRI (pronounced near-ee by those in the know) is a professional association of corporate officers and investor relations consultants responsible for communication among corporate management, the investing public and the financial community. The organization has over 4,500 members in 36 chapters around the country, and they organize some of the finest education seminars available.

I decided to investigate NIRI by attending a three-day NIRI seminar last month. I found it extremely valuable. It was evident by the caliber of speakers and the material covered that NIRI offers some of the most comprehensive information available on communications and investor relations.

NIRI members have access to newsletters and a variety of IR articles, reduced rates for over 20 seminars, resource links and an IR bookstore. The NIRI.org site has a wealth of follow-up information and links to other resources for communications and investor relations professionals.

There are many IR resources out there, but NIRI.org is a great place to start. So don't wait for your company to register before you learn about investor relations. If you do, you won't be part of the process, and your company will not be prepared as well as it could be for going public.

It's Worth Millions to Your Organization

While it may seem self-evident to communications people that the investor audience should be addressed under a single corporate communications umbrella—integrated communications—you may have to lobby corporate executives to garner support for it. However, most bottom-line executives will appreciate the impact of integrated communications on the value of the company itself. Research has shown its impact to be significant.

According to Baruch Lev, Professor of Accounting and Finance at New York University's Stern School of Business, roughly 40% of a company's market valuation can be attributed to non-financial factors, including its perception in the market, strength of its executives, and ability to execute on its strategy—these things have value that cannot be readily determined unless described through corporate communications.

For example, a public company with a book value of $60 million could be valued at over $100 million when corporate communications are working correctly. In fact, strong corporate communications will also raise the perceived value of a privately held company and may make it appear much larger than it is.

This perceived value is delivered to the market through strong, consistent communications to all constituents in the market, including media, investors, employees and analysts. When communications become fragmented and inconsistent between groups, the overall effect of the communication is weakened.

It is also true that when a company's communications are delivered to all market audiences from a single integrated source, the message has greater resonance. That's because each audience hears the same messages in a consistent manner, so they are more apt to relay that information with greater accuracy.

This is critical. According to Northwestern University's 2003 Journal of Integrated Communications, most people say "they believe a story only when they see, hear or read it multiple times."

By integrating the sources of information at a company, ensuring consistent messages throughout, then assembling them into context for each audience type, those communications are optimized for the greatest market impact, and the effect will show on the company's market valuation.

Practice Makes Perfect

After becoming educated on IR and creating a unified communications strategy (but before your company's stock is offered on the market), it would be beneficial to try a couple of practice runs at investor relations. This should include drafts of investor communications, earnings press releases and the creation of an investor relations section for your Web site. This will help you to see what works, and what does not.

Many small corporations have grown on investments from venture capital. An investor relations program will help these investors stay informed about the progress of your company, and that will help if your company requires more capital from these investors before going public.

You should also consider getting some IR consulting help along the way. Becoming IR proficient means learning a lot about a new subject, and expert help is one of the surest ways to bring the team up to speed. Various firms offer products and services in this area, including Ashton Partners, Business Wire, Ilios Partners and many others.

Famous golfer Arnold Palmer once said, "It's a funny thing, the more I practice the luckier I get." Remember that practice time allows for learning and making mistakes, so set some time up front to practice, practice, practice.

So, if your company is considering an IPO anytime in the next 12 months, start educating yourself now, get buy-in from your management for integrated communications and start bring those best practices into your communications mix now.

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ABOUT THE AUTHOR

Bob Gallagher is president of RW Gallagher & Associates. He can be reached at bobg@rwgallagher.com

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