Going Public via Initial or Direct Public Offering: The Role of an Investor Relations Firm - Depending on the size and nature of a public offering, it may be necessary to hire a separate investor relations firm. In many instances, both direct and initial public offerings can benefit from the services of professional investor relations assistance....
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Going Public via Initial or Direct Public Offering: The Role of an Investor Relations Firm
Depending on the size and nature of a public offering, it may be necessary to hire a separate investor relations firm. In many instances, both direct and initial public offerings can benefit from the services of professional investor relations assistance.
For a company going public with an initial public offering, the decision to hire an investor relations firm will probably depend on the company's ability to internalize the function or the underwriting firm's ability to provide the service. Because an investor relations firm can be very important in the establishment and maintenance of relationships within the financial community, many corporations opt to hire a firm that specializes in such tasks. In some cases, companies may opt to hire out this function in hopes of gaining additional contacts through the investor relations firm.
The function of a good investor relations firm is relatively straightforward. The investor relations firm serves as a highly visible point of contact for interested investors and members of the press, answering questions and providing information as necessary. These goals are often accomplished through a combination of internet resources, press releases, webcasts, and phone calls. Brochures and other types of corporate collateral are also the responsibility of the investor relations firm. This includes the fact sheets, presentation materials, and earnings releases that are necessary before an offering.
Prior to an initial public offering, the role of the investor relations firm is especially critical. A good firm can play a major role in the success of an issue, creating an impression of success and stability for investors. Heavy roadshow support is a given with any investor relations firm, and the company may help compose various financial reports to present to prospective investors. Good firms will also help by arranging numerous meetings with potential investors, based on the preferences of the issuing company.
Because direct public offerings are generally used by companies with smaller capital needs, the use of an investor relations firm is somewhat less common. Regardless, its function is just as important to a smaller company as it is for a company seeking funds through an initial public offering. With a direct public offering, there is no underwriter to guarantee sales, so full responsibility for the success of the issue lies with the issuing corporation.
Because the process of issuing and selling public shares is time-consuming and stressful, it may be beneficial to enlist the aid of an outside investor relations firm to help with marketing the issue and communicating with investors. In addition to easing the stress, the use of an investor relations firm can help a corporation appear more professional to investors, creating a greater image of stability and profitability.
It's not impossible for an issue to be successful without the aid of an investor relations firm, but success is certainly more likely with one. By allowing capable hands to take over investor relations functions, the corporation can focus on other important tasks at hand before the issue.
Joel Arberman is the Managing Member of Stock Aware, LLC. We publish a free investment research and analysis newsletter and offer
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