When the sun sets on 2019, it could well be a record year for initial public offerings (IPOs). While IPOs are seminal finance and marketing events for companies transacting them, issuers that are already Nasdaq-listed can also benefit from their newly-listed competitors in five ways that are often overlooked.
- Storytelling. IPO candidates expend considerable time and resources honing their pitches in order to interest prospective investors, particularly during the pre-IPO “roadshow.” The roadshow and related media coverage present terrific opportunities for listed competitors to re-imagine their own storytelling. Particularly for highly technical life science and technology companies that can struggle to adequately explain their businesses, a competitor’s IPO is a way to gauge in real-time how a differentiated messaging approach might resonate with investors.
- Wave riding. Prospective IPOs have a way of dramatically increasing media, buy-side, and sell-side interest in related sectors and business models. There is no rule, however, that listed competitors can’t take advantage of the increased industry focus to benefit their own shareholders. That is, it can be a valuable time for a listed competitor to opportunistically insert their company into the IPO-fueled zeitgeist.
- Risks. An integral part of the IPO process is the drafting and refinement of a prospective issuer’s Form S-1 Registration Statement (S-1). One critical aspect of an S-1 is the rendering of risks that investors should weigh in considering an investment in the IPO. Since there is material regulatory and capital markets scrutiny affixed to S-1s, IPO candidates often research relevant risks exhaustively. These risk disclosures should be carefully examined by listed competitors to determine to what extent, if any, they should (re)consider those risks and communicate about them with their investors.
- Buy- and sell-side targeting. Media coverage of roadshows often includes detailed interviews with fund managers and equity research analysts, who typically opine on the IPO candidate, its competitors, valuations, and the relevant industry. This presents a potentially compelling chance for attentive listed competitors to identify new investors and analysts to target – or avoid.
- Life raft. Since not every newly-public company will see its stock price climb with the passage of time, listed competitors should be ready to educate media and the buy- and sell-sides about how and why they present a differentiated alternative. The more niche the industry, the more important it is for competitors to act decisively in this regard, because an underperforming IPO can have outsized impact on less understood sectors.
Particularly in active IPO markets, officers and directors of Nasdaq-listed companies should consider how their shareholders can benefit well in advance of a competitor’s IPO. The alternative – getting lost in the shuffle – is a missed opportunity that can also impair valuations and credibility.
Adam J. Epstein advises the boards of pre-IPO and small-cap companies through his firm, Third Creek Advisors, LLC. Prior to founding Third Creek, Epstein co-founded Enable Capital Management, LLC; Enable’s special situation hedge funds invested in more than 500 small-cap financings. Epstein is the author of The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies (McGraw Hill, 2012), he’s a teaching fellow at the Nasdaq Entrepreneurial Center, and he’s on the editorial advisory board of Small-Cap Institute, Inc.
The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal advice.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.