The initial public offering (IPO) market is in full swing with many private equity houses looking for a timely exit from investments. Advertising can play a key role in the success of an IPO. So, it's important to note that there are limitations on the right to advertise an IPO. Below we provide a snapshot of what advertising an unlisted issuer can, and cannot, undertake.
General and specific advertising
The rules relating to advertising in connection with an IPO fall into two categories:
- general advertising to the world at large, with different rules applying before a prospectus is lodged and after a prospectus is lodged; and
- advertising to specific groups.
Importantly, the advertising restrictions not only apply to direct advertising of an IPO, but also to "image advertising." That is advertising that does not explicitly refer to the offer but is reasonably likely to induce people to apply for the securities. For example, image advertising may imply that a company is financially secure or successful without specifically referring to an actual offering. As such, indirect advertising can be caught by the Corporations Act advertising restrictions.
If an issuer already engages in non-IPO advertising, care needs to be taken in making material changes to the existing advertising content as ASIC may take the view that image advertising has occurred. Advertisements that form part of the issuer's normal advertising and that are genuinely directed at maintaining existing customers or attracting new customers are generally less likely to be image advertising.
General advertising allowed before a prospectus is lodged
Only limited general advertising is allowed before a prospectus is lodged. This restriction is intended to ensure that investors acquire securities on the basis of a prospectus, rather than advertisements.
Specifically, an advertisement or publication can contain the following but no more:
- the identity of the issuer;
- a statement that a prospectus will be made available when the securities are offered;
- a statement that anyone who wants to acquire the securities will need to complete the application form accompanying the prospectus; and
- a statement of how to obtain a copy of the prospectus.
Other than the above, no further general IPO advertising can occur before the prospectus is lodged.
General advertising allowed after a prospectus is lodged
After an issuer lodges a prospectus, the advertising restriction is more relaxed. Once a prospectus is lodged any advertising content is allowed as long as it contains the following specific statements:
- that a prospectus is available;
- how to obtain a copy of it; and
- that people applying for securities should consider the prospectus when applying for securities.
Of course, it is critical that any advertisement is accurate and not misleading or deceptive, including by omission. ASIC's policy is that 'clear, accurate and balanced' messages should be conveyed.
ASIC has also issued a regulatory guide on advertising financial products and services. That regulatory guide provides 'good practice guidance' to help promoters comply with their legal obligations to not make false or misleading statements or engage in misleading and deceptive conduct, and is also intended to help raise advertising standards more generally. The guidance applies to any advertising communicated through any medium (e.g. newspaper, magazine, radio, television, the internet, social media and numerous other mediums). This guidance should be considered as part of any IPO advertising campaign. Importantly, all advertising must be consistent with information contained in the prospectus and should not use information not contained in the prospectus.
Exceptions for communications to specific groups
Importantly, there are also various other exceptions that enable issuers to communicate to specific groups of people (and not the public generally) which apply both before and after a prospectus is lodged.
- pre-prospectus roadshow presentations - this enables the presentation of information about the company and the proposed listing to be made to brokers and institutional investors. The main purpose is to build interest in the company and create institutional traction for the IPO;
- pre-prospectus market research – this enables market research to determine the type and extent of marketing which should be undertaken in connection with the IPO. The research can only be undertaken by a professional market research firm that is not associated with the issuer and the issuer cannot be provided with the details of the participants;
- issuing pathfinder prospectuses to brokers and institutional and sophisticated or professional investors – these documents are not intended to seek subscriptions but are used to gauge institutional interest; and
- exemptions relating to certain foreign securities.
These permissible communications are often crucial to the initial structure and creating traction for an IPO by engaging in initial soundings to consider the likely appetite for the IPO. These are often driven by the underwriter and corporate adviser to the issuer.
- Issuers and their advisers need to appreciate that different rules apply to advertising depending on when the advertising or publication occurs (i.e. pre or post prospectus), as well as to whom it is made (i.e. whether it is made to the public at large or to institutional or professional or sophisticated investors).
- It is important that any person that contributes to the content of an advertisement considers the above restrictions as they might be exposed to liability in respect of the advertisement if it is misleading or deceptive.
- Any general advertising connected with an IPO should be controlled, and approved, by the due diligence committee for the issue. The due diligence committee will, of course, sign-off on and approve the prospectus and is best placed to ensure consistency between the prospectus and general advertisements.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.