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Real IR: The IPO survival guide
01/10/2004
Real IR
Key points
Recipe for a successful IPO
Don't forget the web site
The roadshow checklist
IR virgin Steven Day worked round the clock throughout his company’s IPO. For him and other European IR heads, an IPO is about more than organising the numbers.
by Scott Payton
“For most executives, an IPO is the most stressful event of their career,” says Lucy Greeves, head of IR services at Imagination Global Investor Communications. She should know; she’s organised more than a dozen of them. But the person who feels the most pressure of all, is the IRO.
“Horrific”, “nightmarish”, “relentless” and “shattering” are just some of the words IR heads have used to describe the process of taking a firm public. But what’s the most effective IR strategy during an IPO? And what can IROs do to make the process as painless as possible?
The tale of an IPO virgin
Steven Day, director of corporate affairs at Virgin Mobile, led IR for the UK mobile operator’s IPO this summer. Despite literally years of preparation, the process was still mentally, physically and emotionally exhausting. But he’s learned plenty of useful lessons to pass on to others.
Virgin Mobile began preparing the market for its IPO from day one. “It was never a given that we’d go public but it was always a strong possibility,” says Day, who left his job as business editor of the UK’s Sunday Express newspaper to join the start-up. At the birth of the company in 1999, it wasn’t just journalists who were invited to presentations. It was analysts, too. “Talking to analysts early on helped us to discover what the City looks for,” says Day.
Although the company is a “virtual” mobile operator (the firm doesn’t own its own network; it rents capacity off German giant T-Mobile), the dotcom crash in March 2000 was a set back for the company. Then a spat between Virgin Mobile’s joint owners, Virgin Group and T-Mobile, meant that plans to go public stayed on the back burner. Finally, by January this year, Virgin Group emerged from the dispute as majority owner, and the IPO was back on the agenda.
Key points
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Taking Virgin Mobile public wasn’t the only option for its owners. A trade sale or debt issue were also possibilities. But Virgin founder Richard Branson had recently floated his Australian low-cost airline, Virgin Blue, to great acclaim. Taking the mobile operator public seemed like an increasingly good idea.
Then, all of a sudden, the theory became a reality. “One day, a meeting was arranged at one of the major investment banks in the City,” says Day. “It was a surreal moment.” Sitting around the table were lawyers, Virgin Mobile’s managers, investment bankers and representatives from Finsbury, a financial PR firm that Day had recently appointed.
“There were 60 or 70 people in one huge room,” says Day. “The atmosphere was suddenly very formal; very serious. It was actually pretty scary.” At the meeting, everyone ran through a timetable for the float. The IPO was on.
| RECIPE FOR A SUCCESSFUL IPO Kirsten Hendrie, director, Cubitt consulting Talk to investors and do a perception audit. Don’t leave all the preparation to your brokers – do your own ‘pulse checking’ of sentiment. Ensure that you have either the in-house or external resources to run like a plc well before you float; have your own database and contact management systems already in place. Don’t let the brokers have exclusive control of the investor roadshow list. Question why certain investors are included and why some are not. Look at your immediate peer group and examine their share registers. Once again, don’t assume your broker will put your management in front of the most appropriate investors. Your marketing and presentation material must truly reflect the ambitions and strategy of the company in the long term – not what will give you a shortterm price hike. Make sure you brief and train all management on the different audiences. Talk to them about disclosure – what can and can’t be discussed, and practice Q&A routinely with them. Analysts will have a very probing style of questioning that some managers may not be used to. Do your own sell-side analysis – remember that brokers will not talk to each other, as they are competitors. The IR team must work with the PR and communications teams both internally and externally to ensure that strategic messages are distributed coherently and without contradiction. |
The first step was to prepare a six to seven-hour presentation for the banks’ in-house analysts. It was a massive task. Day’s job was to ensure that the message was consistent. “But a large number of people contributed to it: the CEO, the investment banks, Finsbury, the finance team and so on,” he says.
Virgin Mobile had been talking to the City since its launch, so the preparation was made easier. “We’d been providing key performance indicators since day one, to show the City that we meant business,” says Day.
It was vital that Tom Alexander, CEO of Virgin Mobile, led the presentation. But his father died during the preparation, so getting him up to speed was a real challenge – as was coping with lawyers crawling over every word of the presentation. “It was incredibly nerve-wracking,” says Day. “But eventually we got something that both Tom and the lawyers were happy with.”
As Day learned the hard way, multiple advisers can lead to conflicting advice: “This led to strong differences of opinion about the best way forward,” says Day. “In hindsight, I think we beat ourselves up too much over it, but it’s really hard if you’ve never done this stuff before.”
Despite the hand-wringing, the presentations to house analysts were a success. The next stage – and the most formidable – was the roadshow. One of the investment banks recommended that Day recruit Imagination, a presentation and investor communications specialist, to take care of the logistics. Day was glad he took their advice: “Imagination booked the venues, managed the itinerary, organised flights and hotels – it was a Godsend.”
Imagination booked a swish conference space in London’s Vinopolis wine museum for the launch of the roadshow. “Branding is very important to Virgin Mobile,” says Imagination’s Greeves, who project managed the road-show. “They really challenged us to get the presentation absolutely right.”
Despite all this support, the CEO was nervous. He’d recently had dinner with Carphone Warehouse founder Charles Dunstone, who’d warned him about how draining roadshows can be. “Charles told Tom about the mountains of paperwork, the massive prospectus, the back-to-back meetings and the barrage of questions,” says Day. “Tom’s reaction was: ‘bloody hell’.”
With the Vinopolis presentation room ready, the roadshow began. Separate presentations were given for prospective investors, the press and analysts. “We’d also built a Virgin Mobile shop in the presentation room to demonstrate our business model,” says Day.
Imagination took charge of the master itinerary for the roadshow, liaising with the banks to set up meetings and reschedule when investors and analysts altered their diaries.
After its glitzy launch in London, the roadshow moved on to other European cities, before heading to the US. “Imagination gave me an envelope every night before I went to bed,” says Day. “It contained a detailed schedule of where I needed to be and what I needed to do for the next 24 hours. I didn’t even need to check in to my hotel. But the pace of the roadshows is so intense that you really need that kind of support.”
Day quickly picked up some useful tricks for making roadshow meetings more effective. “If there was a question we couldn’t answer, I’d send a text message to the office and get an answer back within the hour. Investors really appreciated that,” he says.
While Day, the CEO, CFO and other managers were on the road, half of the management team stayed back at HQ to run the company. “In hindsight, I don’t think we kept them up-to-date on events as well as we could have,” Day admits.
The two-week roadshow ended back in London. By that time, confidence among the roadshow team was high; something that was reflected in investors’ reactions. “Everyone we saw on our last day ended up buying our shares,” says Day.
But there were problems, too. The company’s decision to hold a presentation for unconnected analysts – notorious for writing bearish notes on new companies – led to negative sentiment in the markets. And the performance in the telecommunications sector at large contributed to a decision to cut the launch price. “You can’t control everything,” says Day.
So what’s it like being at Virgin Mobile now it’s gone public? “It’s a bit like getting married,” says Day. “It’s not just about you any more.”
Don’t bank on the brokers
Day’s roller-coaster experience of running IR during an IPO rings true with his peers across Europe. For Ron Scott, CFO of Swiss biotech firm Basilea Pharmaceutica, an over-reliance on the advice of investment banks made his IPO roadshow in March this year particularly draining. “They were setting up meetings 15 minutes apart, in different parts of New York. It was just impossible,” he says. “It’s important to push the banks to give you as much time as possible with investors.”
Basilea’s roadshow lasted ten days. “I wanted two full weeks but, again, there’s so much pressure to fit everything into a tight timeframe,” says Scott. According to Greeves at Imagination, agreeing to an over-ambitious meeting schedule can be the kiss of death for an IPO: “I know investors who have a ‘zero tolerance’ approach to companies that are late for meetings,” she says. “It’s always the little things that trip you up; the late arrival of a taxi can create a snowball effect that leads to a missed flight.”
While Virgin Mobile’s Day had a bereaved CEO and a telecoms downturn thrown at him, Scott had an even bigger crisis to cope with. “The terrorist bombings in Madrid occurred on the first day of our offer. But an IPO takes so long to plan, you can’t just reschedule at the last minute,” he says.
Greeves says that planning for the unexpected is essential for an IPO. “On one occasion, I had a group of executives sitting on a private jet in Florida, about to head into a hurricane.”
IR on the inside
Experienced IRO Katja Görnemann was drafted in to Spanish TV firm Telecinco three weeks before its IPO in June. Though she also had her fair share of fires to put out, she found that getting management up to speed with IR was more challenging than the external communications process. “It takes a lot of time to convince executives about the needs of investors and the types of presentations they need to give during an IPO,” she says. “For example, some managers were used to giving presentations about television programming but they had to shift the focus to financial performance.”
| DON’T FORGET THE WEB SITE “Time and again, companies doing an IPO don’t even think about updating their web site until the last minute,” says Helen James, a director at online IR specialist Investis. “But the web is a priceless source of information for investors and analysts who are new to a company.” James believes that many companies get so scared of the disclosure restrictions surrounding an IPO that they don’t bother to put any information online at all (Premier Foods, which floated this summer, is a culprit). “But there’s lots that you can put up, and you can always add more information as the float progresses,” she says. Virgin Mobile followed this “staggered” online communications strategy; starting with listing information in a restricted part of its web site, then gradually adding more information as disclosure rules allowed. “If you don’t set a precedent for providing sufficient information from day one, then it can be very hard to catch up later,” says James. |
| THE ROADSHOW CHECKLIST Lucy Greeves, head of investor relations services, Imagination
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Like Scott, Görnemann also had her work cut out ensuring that the investment banks gave the firm plenty of time to meet investors. “The challenge of an IPO isn’t explaining the numbers; it’s organising people properly; ensuring that everyone is working together,” she says.
As a company seeking a Spanish listing, Görnemann had yet another obstacle to overcome: a difficult regulator. “It’s vital that you have a very generous timeframe for an IPO in Spain,” she says. “The regulator is very demanding, and the listing process can be incredibly time-consuming.”
For a company with no experience of the financial markets, drafting in an experienced IRO such as Görnemann is a great help. “There were investors who I knew were strategy-focused; others that I knew were numbers-focused, so we could tailor our one-on-ones accordingly and tell executives what to expect,” she says. “But most important of all, the management team was genuinely interested in the IR process; they really got involved in developing clear messages to give to investors.”
IPOs in the US
The challenges are even greater for European firms floating in the US. “There’s probably no bigger difference between the European and US markets than the IPO process,” says John McInerney, a senior director at Citigate Financial Intelligence who has helped many European firms to float in the US. “Most important, the SEC prohibits any conditioning of the market ahead of an IPO,” he says. “If a company is seen to conduct any communication that is out of the ordinary, the regulator will come down really hard on it.”
The solution? “Companies must develop a pattern of releasing information into the market six months to a year ahead of the IPO,” McInerney says. “That way, when you communicate in the run-up to the IPO, there is already a precedent in place, so it won’t raise the SEC’s concern.”
The SEC has no jurisdiction over the European media, but international titles present grey areas. “For example, the Financial Times is distributed in the US, so you’ve got to be careful,” McInerney says.
Another potential pitfall for European companies listing in the US is misjudging the expectations of Stateside investors. “Most European executives don’t realise that US investors will want to see the company again six months after an IPO,” says McInerney. “It’s really important to do that follow-up.”
Staying sane
Wherever you’re seeking a listing, these are two sound pieces of advice from the experts. “Get plenty of sleep before the IPO starts,” says Virgin Mobile’s Day. “And make sure you phone your partner every night when you’re on the road,” adds Imagination’s Greeves.
Is it all worth it? Absolutely: “A roadshow IPO is a once-in-a-lifetime opportunity for a company to establish good relationships with the investment community,” says Greeves. “Don’t waste it.”
© Real IR 2004. This article originally appeared in Real IR, Europe's investor relations magazine. For more information, visit www.realir.net (this link opens in a new window).
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