Four companies announced their intent to list in recent weeks and at the eleventh hour, all four IPOs had been shelved. In the days and weeks to come, we will no doubt see countless explanations about why these companies – that are heavily advised by some of the country’s most eminent listing experts – have failed to secure sufficient demand and support for their respective bookbuilds to take their stocks public.
tony boyd says in his article this week – that “fund managers have been happy to rush into companies with good stories to tell”.
These recent failed IPOs reinforce the need to address the nagging question that financial communicators have no doubt tried to push to the top of the agenda in those endless company-advisers transaction meetings. The question is what makes an equity story compelling and good to tell prospective investors in this evermore noisy marketplace?
It goes without saying that companies considering going public should focus on the presentation of their current operations and financials as well as their future growth options in their investment proposition and equity story.
However, considering the Latitude IPO for example, the financial attributes and performance indicators alone were not sufficient to address the valuation gap related to the potential growth opportunities and overall future sustainability of the business. This gap between the company view and the market view effectively led to a breakdown of communication between the investors and bankers on the case despite earlier positive signs of commitment.
In the case of WeWork, doubts were cast regarding the operations and financials of the company which affected its overall equity story. But it was the softer non-financial matters related to the credibility of the management particularly the CEO and the quality of business processes that ultimately kicked the bucket for the company.
The undeniable fact is that the Australian capital market is undergoing a watershed transition period where softer non-financial attributes have taken centre stage for institutional and sophisticated investors. At the same time foreign investors have made clear their positioning on alignment of ESG and other components of responsible investment strategies that look beyond the financials of companies.
In this new market reality, a ‘good story to tell’ should be by design.
Companies intending to list, or to engage the capital market, need to up their game and present a better narrative and equity story that consists of all the traditional financials but also clearly covers its non-financial attributes. These may be the long-term vision for a sustainable business, the quality and credibility of its management, its people and culture strategy and succession planning, as well as innovation, scalable capabilities, quality of business processes and execution on corporate strategies. The story should also address clearly and definitively the influences that affect the sector and market overall.
This type of holistic equity story is what investors want to hear to help ease their process of separating the wheat from the chaff when committing capital to IPO suitors.