April 1, 2016
FTI Consulting’s new Corporate Issues Study focuses on six key corporate issues – M&A, Shareholder Activism, IPOs and Spin-Offs, CEO Transitions, Regulatory Changes, and Crises – as seen through the eyes of institutional investors. Part I of the series takes an in-depth look at the role investor confidence plays when it comes to evaluating a variety of corporate issues including Mergers & Acquisitions, IPOs and Spin-Offs and Shareholder Activism.
In this portion of Part I of our series, we evaluate investors’ view of equity offerings – through IPOs and spin-offs, which are often viewed similarly by the Street. As companies grow, it is not uncommon for management to evaluate strategic alternatives, including separation of business segments that might operate more profitably and efficiently as separate companies.
When a company is considering entering the public equity markets, there are many factors that may contribute to their success – some of which are within the company’s control and some of which are not. Having a strong understanding of the importance of these factors in the eyes of the investors will strengthen a company’s communication strategy when entering the public markets.
In looking at the factors investors evaluate as critical for a successful IPO, we differentiated between those a company can control (internal) and those they can’t (external). Overall, internal factors ranked as the most significant contributors to the success of an IPO.
Specifically, investors believed that the following factors (in order) significantly contribute to a successful IPO:
On average, investors view the level of significance of internal factors as 35 percent more important in the success of an IPO than external factors. These findings are consistent across confidence levels – that is, whether investors are confident or lack confidence in a company, they identify those factors within the company’s as more pivotal to IPO success.
When looking at a spin-off, investors believe that the following factors significantly contribute to its success:
Confidence plays a role in perceptions of companies executing an IPO. In particular, investors are far more concerned about high leverage when they are not confident in a company.
As with many of the areas we’ve explored in this series, shareholder confidence makes it easier to execute a company’s strategy.
As the infographic shows, when investors seek information about an IPO they look for sources that will have reliable, accurate, and up-to-date information. They prioritize financial data services such as Bloomberg (72 percent); sell-side analyst reports (69 percent); company press releases (66 percent); and company conference calls (65 percent). In contrast, social media is the least utilized source for IPO information, with only 12 percent of investors indicating they seek out information on IPOs via this channel.
Companies experience a broad variety of events, transactions and issues throughout their lifecycle – all of which can dramatically impact enterprise value. Smartly managing these critical inflection points can be the difference between success and failure in the eyes of investors, customers, the media and the public at large. FTI Consulting Strategic Communications’ Corporate Issues Study was conducted among more than 300 institutional investors worldwide, and takes an in-depth look at these critical issues through the eyes of the investment community.
In a two part online series to be published in installments over the coming months, we’ll take a closer look at key unifying themes that emerge from our Corporate Issues Study, which is based on survey responses regarding M&A, Shareholder Activism, IPOs and Spin offs, CEO Transitions, Crises, and Regulatory Changes.
Throughout the survey, we also investigated the role that investor confidence plays when it comes to evaluating the six issues above. As data from FTI Consulting’s proprietary 2014 Enterprise Value Study demonstrates, confidence is the key to influencing behavior among employees, customers, investors, governmental leaders and the public at large. In fact, our research demonstrates that confidence is the key to driving action among stakeholders – employees to join or stay at a company, customers to buy products and services, investors to purchase and hold stock in the company, and policymakers and citizens to advocate for the company in their communities. The overarching takeaway, which will be borne out in our series: when investors have confidence in a company, that company receives significant breathing room to operate, particularly when faced with a critical event, issue or transaction.
To determine the impact of confidence on the perceptions and behaviors of investors, FTI Consulting developed a split sample survey approach whereby participants were randomly selected for two groups. This was done for each confidence related question. The questions posed to each group were identical with one exception: one group was asked to answer the question about companies they were confident in, the other about companies they were not confident in. Results were then compared and the differences (delta) between the means of both groups were calculated. Statistical analysis was then performed on the data to ensure that the differences were statistically significant at the 95 percent confidence level.
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