Driving IPO Investor Communication

The Situation

At the time of its IPO, an LHA client faced two uncommon and potentially damaging issues that were prominently highlighted in the risk factors in the company’s S-1 filing. The client had been named together with several competitors in an intellectual property (IP) lawsuit by a major industry powerhouse, alleging various products infringed its patents. Additionally, following a violation of the Foreign Corrupt Practices Act (FCPA) about six months earlier, the company had been assessed a monetary fine and was under Department of Justice (DOJ) monitoring for two years. The situation we faced was how to address these issues during the IPO roadshow, striking a balance between transparency and information management.

After discussing the situation at length with client management and company advisors, it was determined that neither issue was likely to have a material impact on the company’s operations or financial results in the near-term, and possibly ever. The IP litigation would take several years to progress through the judicial process, the lawsuit was believed to be largely without merit and chances were considerable that it would settle prior to a court verdict. The fine had already been paid under the FCPA and, given stringent oversight of company policies and procedures, the DOJ monitoring would likely expire without additional incident.

LHA’s Solution

• Recommended a reactive response to both issues during IPO roadshow meetings, so as not to elevate either beyond the status it was due.
• Prepared a background slide addressing each issue for as-needed use during roadshow Q&A.
• Prepared and rehearsed management to respond to questions about both topics during the roadshow and in all subsequent communications with the investment community.
• Conducted a post-IPO audit of non-buyers, contacting targets, compiling comments, reviewed trends and submitting findings, analyses and recommendations in a report to management.

LHA’s Results

The IPO was successfully completed including a full exercise of the underwriters’ over-allotment. The two issues were seldom raised during the IPO roadshow, were handled adeptly, and were rarely brought up in subsequent question-and-answer sessions during quarterly conference calls or in investment community one-on-one meetings. Indeed the non-buyer audit found neither issue was a factor in any institution’s purchase decision. The company completed a follow-on offering the next year at a valuation that was higher than the IPO price. The litigation settled for a modest cash payment and the DOJ monitoring expired without incident.