How can your brand maximise IPO value?
Smart investors no longer look at pure financial measures to base their evaluation. Brand strength is one of the growing factors used by investors to gain a deeper understanding of a company’s merits and gauge its future success. As part of the IPO campaign, the brand can help a company connect with the financial community, drive a higher price, and eliminate uncertainty as the company enters the public eye.
Naturally, management teams become preoccupied with the financial rigour and compliance, demanded by underwriters in the initial IPO process. But they neglect to lay the groundwork for a successful process by not considering what their brand stands for and how will investors, analysts, and banks perceive it. What are the key messages that will reassure the financial community to invest, and how will they sustain interest before, during, and beyond to maintain investor commitment?
Raising capital, improving liquidity, and enhancing profile are all advantages that come with a successful IPO, but by solely focussing on financial measures they risk undervaluing all the hard work that got them to this point. For today’s investors, this is simply kicking the tyres, they will take a long look under the hood to see if the management team has the ability to deliver on their strategy. One of the key measurements investors look for is brand strength. Has management built up a brand that can sustain the company through hard economic cycles, to create long-term value for the business?
In this white paper, we provide some insight into the pitfalls of an IPO and offer some guiding principles as to how your brand can maximise success from this vital opportunity.
Smart investors no longer look at pure financial measures to base their evaluation. Brand strength is one of the growing factors used by investors to gain a deeper understanding of a company’s merits and gauge its future success. As part of the IPO campaign, the brand can help a company connect with the financial community, drive a higher price, and eliminate uncertainty as the company enters the public eye.
An Initial Public Offering (IPO) is the first sale of shares by a company and is one of the most important opportunities in the development of a company. It’s a moment in its history, where it can have a radical impact on its future and the management team that govern it.One of the most powerful assets a company can have in this process is its brand. But it's a strength that’s often overlooked in a process often driven by the financial team, who are usually unfamiliar with the potential of branding and naturally preoccupied with the rigours of preparing for the offering.
Smart investors no longer look at pure financial measures to base their evaluation. Brand strength is one of the growing factors used by investors to gain a deeper understanding of a company’s merits and gauge its future success. As part of the IPO campaign, the brand can help a company connect with the financial community, drive a higher price, and eliminate uncertainty as the company enters the public eye.
Eight reasons why companies decide to go public
Raise capital
Public financing is a way for management to raise higher sums of capital than they would otherwise privately. Because the shares can be sold easily, the valuation is typically higher. This capital can be used for expansion, research, and development, paying off debts or capital expenditure.
2. Improve liquidity
More established companies may be planning for mergers and acquisitions (M&A), and through an IPO it becomes easier due to their shares being clearly valued. The subsequent liquidity from an IPO means it’s easier to issue shares as part of the M&A deal. Another benefit is that shares become available to attract potentially key employees, who could be crucial to the development of the company.
Reward and retain investors
The sale of shares should prove to be very rewarding to existing shareholders who have contributed years of hard work, risk, and sacrifice to get the company to this point. Equally, Venture Capitalists who have provided funding to the business in its progress, have an opportunity to reap the return on their insightful investment.
4. Build prestige
Being listed is considered a major achievement, it’s a statement that the company is sound enough to meet the stringent regulation and confirms business stability. A highly sought after IPO has cache, and it says something about the quality of the leadership that has steered it to this position. This prestige can be leveraged to acquire future loans from financial institutions.
5. Undervaluing the opportunity
With so much to gain, an IPO can be an uphill struggle, and for many management teams, it’s often a first time experience. It's common for companies to engage in the rigourous financial reporting required, but assume that the numbers speak for themselves. They fail to recognise that they are communicating to new audiences with their own expectations, often neglecting to build a meticulous campaign to win shrewd investors over. These are some of the standard mistakes in the process:
6. Cutting corners
Prior to an IPO, it's quite common for a CFO to cut spending to demonstrate frugal financial management. Marketing is often seen as one of the things that can be cut, but this can create the risk of undervaluation. Investors are aware of this transparent tactic for short term results, in fact, marketing spend is essential to maximise the best possible result from this business critical opportunity.
7. Return on effort
A successful IPO doesn’t just happen overnight. It demands rigorous preparation for disclosure, detailed reporting, and compliance with regulations, all of which comes at a significant cost in time and money. Better to ensure that all the preparation, cost and effort yields a successful result.
8. Complete the team
Investment banks guide companies through the underwriting process and will help them to understand the strengths and weaknesses of their offer. But underwriters will not be able to help with branding and the well-conceived messaging required to convince investors that this is a sound investment. Branding experts bring the communication skills to ensure an effective bid.
Eight ways branding can help your IPO
Branding plays a vital role in building awareness, credibility, and the confidence to secure a strong valuation. Preparing for an IPO is just like any other marketing process, only this time you are selling shares instead of your traditional products and services. Your target audiences are now analysts, investors, exchanges, and staff with their own unique interests. Your competition is harder to read because investors will follow the best opportunity for profit, so you could be competing with businesses wildly different from your own. By following these eight principles you will be well positioned to reap the benefits of this rare opportunity.
More than just a logo
If you are looking towards an IPO in the foreseeable future, you have more than likely developed your brand as part of your strategy for success. But for many this is still a cosmetic activity concerned with the logo and colours. A brand is more than a visual expression, it's a carefully conceived persona for your business, incorporating your purpose, values, and messages that clearly position you towards key stakeholders in a compelling way. Investors won’t choose you because they like your logo. But they will favour a business that has figured itself out, one that uses its brand to facilitate business strategy, that can articulate its value, and work intelligently to build a long term relationship with its audiences.
2. Stand out and be recognised
The number of IPOs is increasing with the economic recovery. Investors are becoming spoilt for choice, making it difficult for companies going public to stand out. You can have a fantastic financial offering, but if you don’t get noticed, you won’t be considered, despite your potential. The ability to engage investors with a strong vision, strategic message and game plan will reassure investors as much as strong numbers.
3. Brands indicate strength
Investors are naturally focussed on the financials within your offering, but equally branding itself has proven itself as a significant indication of a company’s ability to perform. If a company can charge a premium for its services because of the popularity of its brand, it is seen as having strong brand equity. Agreeably this is an intangible asset, but now widely recognised by investors as an important non-financial indication of prolonged success.
4. Play the long game
Effective IPO’s are often conceived as campaigns, maintaining a strong momentum through preparation, initial announcement, through the roadshow and beyond the valuation to engage and sustain positive interest.
At the heart of the program is often a carefully structured narrative explaining what will be happening. It describes why the IPO is important, how the money will be raised, how it will be used and answers the number on question on investor’s minds - why should I invest with you?
Investment banks naturally look at the management track record, financials, and business plan, but they also need a story to pass on to their prospective investors. They often meet skepticism and depend on a strong, authentic story to help them justify their recommendation.
5. Strong brands attract the best partners
If your brand is dated or lacklustre, you are less likely to find one of the top tier investment banks in your corner. Top tier investment banks want to align themselves with businesses that will succeed, and any IPO would welcome the prestige that such partners bring. With these brands involved in the underwriting, its implied that your offer has passed their superior scrutiny, lending credibility to the prospect.
Similarly, the various Stock Exchanges want the business generated from the IPO, the future trading, and the prestige of a successful company listed with them. So Exchanges will pitch to represent the company. A well-branded business is in a much better position to attract the best partners to help them succeed.
6. Create a compelling roadshow
The IPO roadshow provides the opportunity to present your prospectus to potential investors. It is often the only time senior management will communicate directly with potential investors. Some IPO’s take this opportunity a little too far resorting to theatricality to grab attention.
Mark Zuckerberg notably wore a hoodie to his meeting with investors at the Facebook roadshow. This laid back gesture wasn’t well received and marked the start of a fumbled IPO that saw the tech giant greatly overvalued, with shares plummeting just weeks after. Their underwriters Morgan Stanley and the NASDAQ equally suffered from the ill-planned fiasco.
By all means be confident, but base your presentation on a solid why, what and how narrative to provide investors with a clear reasoning. It’s better to make a strong first impression, than see shareholders ignore you from the outset.
7. Delivering on your promises
From the time a company announces they are seeking funding, until the IPO is completed, there is a quiet period where management are forbidden to speak about company finances in public. However normal brand communication can continue. This is where the brand can play an important role once again, by demonstrating business momentum through its website, social media, PR, and events. After the IPO the share value will stabilise so, it’s vital to continue to build the relationship with investors, analysts and the media, to prove the strategy works, and make good on promises.
8. Gain the support of employees
Most well branded companies place a great deal of energy into engaging the employees , i.e. the way the company guides staff to operate, in a way that benefits the progress of the business. Employees are often more external facing then leaders and can act as ambassadors for the business, reflecting the positive culture within. This shows the perception of the brand isn’t disingenuous, but part of the DNA of the company. Furthermore, if staff are aligned, supported and well-motivated they are less likely to leave, and contribute to growth in this important time.
Preparation is everything
Most business leaders understand their brand can be a powerful business asset if they consciously develop it. However, entering into an IPO places new conditions, which demand that you revisit your brand to check if its fit for the fight.
Many companies understand what’s at stake and plan in advance, in Ernest and Young’s Guide to Going Public, they recommend that companies, “begin to act and operate as public companies at least one year in advance of the IPO." This allows businesses to act fast when market conditions are favourable. It’s also the best time to step back and review your brand. Ask yourself does it represent the company you are and will become in the foreseeable future? Do you have a compelling central message that resonates with your business strategy and stakeholders? Have you planned a communication campaign that will engage and reassure investors, from the roadshow through the IPO and beyond?
More investors are looking at non-financial performance measures. Consequently, management are assessed on their experience and ability to execute corporate strategy, but they are also being judged on their ability to build a strong brand, if you invest in your brand - the market will invest in you.
