Should our IPO documents look like the US?
After years of working with investment banks and their clients on IPO documents it is now time to revisit the need for design in an IPO document.
Back in the late 1990s and through the early part of the 2000’s when a large percentage of retail investors were jumping in to IPOs there was a need to try and position a disclosure document in a way that they could understand.
My business partner Bob Withers came up with a clever idea in the late 1990s to bring the business overview section to life. Through design, help the reader get a great snapshot of the business was all about, its services, strength of offer compared to competitors, location. market share and to help these investors make a decision either way. The marketing section was born. This went on to be known as the ‘key investment messages’ section. As much as regulators and advisers wanted you to read the ‘War and Peace disclosure document’, and I am sure some did, most wanted an investment snapshot as a back-up to their ‘adviser’s’ recommendation to invest in the IPO.
In the industry this became the new normal. The bulk of investment banks adopted this structure. As times rolled on, deal structures changed, such as front- end book-builds, the pace at which they were executed sped up, this meant ‘the deal was done’ before there was time to design and layout a glossy IPO front section of the document, print it and send it out to brokers and for them to send to their clients. These days the deals are usually done and dusted way before this point.
The regulators also became increasingly concerned with how the ‘investment messages’ were sold, using enticing images and the like on front covers and on the ‘marketing’ pages (I can think of a well known department store whose float we worked on!). Funnily enough, the very first IPO I worked on in 1998, I overhead a company representative request a then famous female star of a US TV show be put on the section break of the financials. I wonder why?
I would argue that today IPO documents should have a nice cover representing the visual brand of a business and the rest of the document could be a PDF of a Word document. Having the internal hundred or so pages formatted, checked by advisers, having the lawyers updating their due diligence versions whilst marking up or checking changes from a design agency using design programs is double handling and in my opinion a complete waste of money for the client and a time waster for advisers. It is a very expensive and inefficient process. It can cost tens of thousands of dollars, which I am sure any company CFO would rather use in other ways, especially in their first year of being a public company. Every dollar helps when trying to hit the markets expectations in the first year!
Since the GFC advisers have been running lean. Pre the GFC the IPO drafting was used to ‘blood’ summer inturns or to see if younger executives could deal with the pressures of working without sleep for nights on end. There are plenty of senior investment bankers that I worked with back then that made it through… and plenty who didn’t.
The process needs to change. Apart from New Zealand we are the only country in the world that still produces ‘glossy’ IPOs.
Surely, it is time for a change.