A tough IPO

We had an outstanding guest-speaker in my investor relations class today. Cheryl Schneider has over 25 years of experience in investor relations and she was a great guest to have.

She told us an interesting case study about a company she helped through an IPO. The company business model was so complex (it was a financial services company) that even financial analysts could not figure out the company’s business model and how it makes money. Now, try to sell a company like that!

But even more, the company was the first company in its industry to go public – thus, no comparables. We know about financial analysts love for comparables, but there is also an investor relations officer love for comparables – after all, we can target investors who own stock in similar companies and analysts who cover similar stocks. Well, that would not work in this situation! To make matters even worse, or I should say more challenging, the company’s founder did not have any past record of running companies, let alone publicly traded companies. Well, you cannot use the track record argument then, too.

This situation requires a great educational effort on behalf of the investor relations team. I tell my students that investor relations job is education – it is to educate investment community about the company and its business and it is also to educate the management about the investment community. Education is the main responsibility of the investor relations professionals, and not disclosure.

The case reminded me of my communications with former NIRI President, Lou Thompson. I have a tremendous respect for Lou Thompson - he contributed a lot to the profession of investor relations - but he once told me that investor relations is all about disclosure. And I had to disagree with him on that.

Disclosure is one of the tactics but it is not a goal of the profession or of the professionals, or at least it should not be. It is an important tactic, a legally required tactic in some instances, but it cannot be equated with the investor relations profession and everything that the investor relations professionals do. For one, it is not sufficient to put the information out there, more is needed to ensure your message is received, understood and acted upon. And second, focus on disclosure ignores the flow of information from investors to the management and, in my experience, it was always an extremely important part of the job.

So, once again, I want to thank our today’s guest speaker, Cheryl Schneider from Porter, LeVay, & Rose, for her great presentation and case study in my investor relations class.