Making Noise in the Quiet Period

By Michael Fox

How to capitalize on the branding opportunity of an IPO without running afoul of SEC rules

In the past month, two high profile companies– Slack and Uber – provided a few examples of how not to handle PR during the IPO process —  a critical period in a company’s evolution.  Both companies had to amend their S-1 SEC filings as a result of unsanctioned interviews by Board members, both of which occurred on CNBC and included commentary that was either not authorized by the company or not consistent with statements made in their filings.  The amended filings – known as a Free Writing Prospectus – involved filing transcripts of the interviews and disclaimers from the company that they did not sanction, nor endorse the comments.

In its worst case, missteps like this can result in an SEC-mandated “cooling off period” which would require the company to push its IPO plans back a few months.  That may not sound like a big deal, but the fragile capital markets are always only one disruptive event away from closing up on new offerings, and missing an open window could result in a lengthy delay.  But even apart from action on the part of the SEC, it reflects sloppiness on the part of the company and can cause prospective investors to wonder if a company is really ready for the intense scrutiny of the public markets.

The SEC requires that from the time a company begins the IPO process that they operate in a “quiet period.”  Beginning that process is generally defined as the point at which they retain investment bankers for that purpose.  Like most government regulations, the definition of that term is about as clear as mud, but it generally means that regulators want all relevant information about the company that would be of interest to a potential investor to be contained entirely in one place – the Prospectus (S-1 filing), that the SEC reviews and approves.  Any new and material information that the company might provide elsewhere at this time (e.g., in a media interview or conference presentation) is considered to be a violation.  Even confidential employee communications are subject to these guidelines, as we witnessed in 2011 when Groupon was sanctioned (for a second time) by the SEC after an internal memo by CEO, Andrew Mason, made financial claims to defend against public scrutiny.

So does the “quiet period” mean companies must refrain from speaking at all during this time period — which can last anywhere from 3-4 months to almost a year depending on circumstances?  No, of course not, companies couldn’t effectively operate if that were that case.  So what can they do and where are the boundaries?

For starters, companies are allowed to continue “normal course of business” communication.  This generally covers basic external marketing and typical internal communication.  But it also underscores why it is important for companies to establish a practice of active communication prior to entering the IPO process.  If you don’t regularly send out press releases or do media interviews around product announcements, data reports, new hires or other basic company developments, then it is tough to claim those actions as normal course during the quiet period.

More importantly, the SEC is concerned about what you are saying and who is saying it.  The primary restrictions are around any substantive commentary about the business, its performance or financial results, future prospects or major developments – such as new customers, updates on litigation, entering new markets, etc.  All of that information needs to be contained in the S-1 and anything that is not should not be discussed publicly.  While some companies will publicly acknowledge they are in the IPO process (even if their filing may still be confidential at the time), it is generally frowned upon to comment on the offering itself.  And the comments of company executives and board members are particularly scrutinized.

It is critical that companies going through the IPO process educate their executive team and board – and the entire employee base once the fact that they are pursuing an IPO is made public – about the rules and restrictions on communication.  Spokespeople who may engage in media interviews or speak at public events need to be coached very carefully on how to answer questions and avoid commenting on topics that will get them in trouble.  For a senior executive that is nearly impossible, so our advice is to refrain from interviews prior to the IPO.

Following the pricing and listing of the stock, the company remains in a quiet period for another few weeks, but it has become customary for CEOs to participate in listing day interviews.  These interviews, generally with top tier financial outlets, as well as local and trade publications, are a great way to draw attention to the company from a business development standpoint, using the IPO as credibility and a branding moment to educate  current and potential customers and investors.  But navigating this still-sensitive time period requires skill and preparation.  Here are a few tips:

  • Carefully prepare for interviews with a comprehensive Q&A session
  • Anticipate questions that are typical in IPO interviews (e.g., “tell me about the Roadshow” or “How do you feel about the price”) and prepare answers such as “if we execute our business plan, we are confident the stock price will take care of itself over time”
  • Develop planned responses for questions that cross the line (e.g., “We’ve stated X in our filing, and we look forward to updating investors and the public in the future.”)
  • Ensure all key messaging and planned responses are aligned with the prospectus
  • Prepare for media to ask questions about “risk factors” highlighted in the prospectus and develop responses that communicate how the company is mitigating those risks
  • Consult with company counsel as well as the underwriters and underwriters’ counsel to determine whether the company will pursue listing day interviews prior to when the stock has begun trading
  • Prepare to give the same interview whether the stock trades up 50% or down 50%
  • Communicate the company’s long-term growth strategy as outlined in the prospectus, with listing day as the beginning of the next chapter of growth, regardless of where the stock priced or is trading
  • Limit the total number of interviews and spokespeople, to ensure messaging stays tight (the IPO follows a grueling 2 week roadshow and the management team will be exhausted)
  • Know your interviewer and make sure they are informed about the company in advance
  • Stick to the script!

The last thing you want to do in these interviews is create new news.  The IPO is the news and it speaks for itself, the interview is simply an opportunity to guide the narrative, inform the story and shine a brighter light on that news.

An IPO is one of the most important and exciting corporate events a company will experience.  It should be celebrated loudly and proudly, but it has to be managed within the rules laid out by regulators.  Careful advanced planning and experienced execution can help companies achieve maximum brand exposure without stepping out of line.


Author Michael Fox is the Chief Client Officer for ICR and has advised clients on more than 150 IPOs in his career.

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