IPO Advertising and Communications

India

IPO marketing in India has some unique features. IPOs here target retail investors, while abroad it is institutional investors who put in their money. The noise levels are predictably higher in India because of this.

Almost 35% of the size of an issue, incidentally, is reserved for retail investors. However, institutional investors play a bigger role in IPOs today than they did in the 90s, when the retail investor was king. Earlier, issues were at par and the retail investors and institutional used to participate on equal terms. Today, issues are sold at a substantial premium to face value, and the target is no longer just the retail investor. The focus has shifted from a retail to an institutional market today. Subsequently, the role of an agency has also changed over time.

Still, important role is played by specialist IPO agencies working in tandem with companies looking to go to the market. These specialists are given the communication mandate, right from corporate advertising to public relations, stretching for about two-three months. Merchant bankers involved with IPOs recommend a list of agencies to their clients, who then decide on the latter based on experience and merit. The trend at the moment is to consolidate the entire communication portfolio with a single agency as there is synergy in the message going out to various stakeholders including retail as well as institutional investors.

Besides Concept, a clutch of agencies including Adfactors, Pressman and Sobhagya, are key players in the IPO communication business valued at about Rs 250 crore. The overall financial communication business, for the record, of which IPO communication is a part, is about Rs 1,500 crore, say observers.


IPO marketing commences almost three to four weeks before the draft red herring prospectus (DRHP) of the company is filed with Sebi. The process begins with the release of corporate ads, which continues well after the DRHP is filed. In fact, corporate advertising is permitted for a period of 21 days after the filing of the DRHP. Once the draft red herring prospectus is cleared and the date for the issue is finalised the company is debarred from making any “futuristic statements”.

Hence, the first phase is critical because the company can send an unrestricted message to prospective investors As such, the overall communication package involves media and investor relations, liaising with fund managers, brokers and analysts. Roadshows, in particular, are undertaken by corporates to build interest and intrigue for the IPO. Target centres hve to be identified for roadshows.

Typically, IPO roadshows cover all the metros in the country. However, if the company is keen to target small investors then a visit to smaller towns and cities is not ruled out either. Unlike in the 90s, when corporate advertising was permitted right up to the launch of the issue with merely a few days gap between the issue-opening date and the close of the campaign, today, it is largely PR that calls the shots.

For selection of an agency, what is most important is that an agency should be able to understand all the statutory requirements and compliance norms. It should be able to deliver results under tight deadlines and schedules. So it must have the full knowledge beforehand.

Most issuers these days do corporate advertising only if the size of the issue is large or they have goals beyond the current offering.

The cost and complexity of media options has increased and small issuers can’t afford a pan-India image build-up.

The estimates for ad spends are that the spends on IPOs vary between 0.5 and 1% of the issue size. Agencies could either charge a flat fee for the entire package or a 15% commission for ads issued and additional fees for services rendered.

The companies and the advertising agency has to try and merge the short-term objectives of the IPO with the long-term growth story of the company. How well they do it determines the return on investment in IPO advertising.

References
http://www.financialexpress.com/old/fe_full_story.php?content_id=132915
financial express, net edition, Thursday, July 06, 2006

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USA 2000

IPO as spends

A study of 12 successful companies with successful IPOs seemed to split into two distinct groups: firms that spent more than $2 million on advertising before and during the IPO, and those that parted with less than $750,000.

All of the companies either initiated or bulked up ad expenditures just before the offering. But some of them, including Drugstore.com and Priceline.com, spent significantly more than others. This group spent from $2 million to upward of $8 million on advertising in the three-month period before and including the offering. After the IPO, ad money from these big spenders tended to taper off - with the exception of iVillage, which launched into an escalating ad campaign.

Another set of companies followed a different path, spending less than $1 million on advertising before the IPO. These companies, including MarketWatch.com and TheStreet.com, had modest ad expenditures before their IPOs, and gradually increased spending after going public. One exception was NetZero, whose post-IPO ad expenditures went through the roof.

Clearly, high spending wasn't a prerequisite for a successful IPO. Foundry Networks, the only b-to-b play on the list, soared with minimal ad money.

While certain companies did not spend on Large pre-IPO ad spending, Ask Jeeves spent almost 12 percent of the eventual amount raised by its IPO on ads before and during its offering.

Advertising For The IPO

http://theindustrystandard.com/article/0,1902,13013,00.html

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