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The Role of Communication in IPOs

This report prepared by LLORENTE & CUENCA includes the views of journalists, bankers, analysts, managers and PR professionals around communications of IPOs in the Spanish market between 2007 and 2009.

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Journalists’ views in the pre-crisis

In a scenario which was already moving towards a crisis, media stressed the risk factors of such operations and the difficulty experienced by companies and their banks to convince investors of the soundness and benefits of an offering. In the last three years there has been a total of thirteen flotations for a cash value of 10,865 million euros. The IPOs of Criteria and Iberdrola Renovables accounted for 73% of that amount.

Media reveal IPOs

It is relatively common for the media to reveal an impending IPO prior to its official announcement. However, it is only when the company confirms its intention to go public that the amount of media attention really takes off.

Significant media interest

An IPO always generates enormous media interest. The amount of interest will depend on the size of the company, the profile of its managers, the recognition enjoyed by the brand and the importance of the company’s shareholders. The critical moment is when the prospectus is approved and filed, as it requires the company to set down the real situation of its business in black and white.

Messages during the market debut

On the company’s stock market debut there will be positive and negative messages. The former will include such issues as the success of the placement and the recognition of the company’s worth, its courage and long-term outlook. The latter will centre on issues such as the shares falling below placing price or being sold at an insufficient discount

Reason why of failed operations

There is a reason why flotations fail, which is that companies fail to stem the flow of negative opinions regarding the IPO in general, and the company’s actual business situation in particular. The investment community concludes that the company had to go public in a hurry to solve their financial woes and that its stock market ambitions were therefore a necessity rather than strategic.

Importance of listening to online rumours

Cloaked in the anonymity afforded by blogs and opinion forums, top-notch professionals from various fields exchange information, often regarding company valuations and fundamentals. The company needs to painstakingly monitor the information gathered from these channels and do its best to mitigate its effect.