|Services:||Corporate & Commercial|
|Industry Focus:||Agribusiness, Life Sciences & Healthcare|
What you need to know
- ASIC continues to put initial public offerings in the spotlight with its latest report on marketing practices used to promote IPOs, which includes a focus on whether social media is changing the way IPOs are marketed.
- While the regulator's inquiries pre-empt widespread adoption of social media in this space, and we have spoken with brokers who remain sceptical about the value of social media marketing for IPOs, ASIC's report suggests that social media presents a "creative and innovative" way for issuers and brokers to promote IPOs.
- Companies considering an IPO, or brokers looking for creative ways to engage with potential investors, should consider whether social media is likely to be an effective marketing tool in their IPO campaign. If the answer is 'yes', it's crucial that every LinkedIn post, Facebook ad, tweet, share and 'like' complies with the letter and spirit of the law.
ASIC review of marketing practices in IPOs
ASIC recently issued a report on the marketing practices adopted by companies undertaking initial public offerings and by the brokers selling them.1 While ASIC considered a range of alternative marketing methods (including video, online bookbuild sites and investor forums), the corporate regulator was particularly keen to discover whether social media is changing the way IPOs are marketed. It found (unsurprisingly) that traditional methods still dominate but that social media presents a "creative and innovative" way for issuers and brokers to promote IPOs.
In our view, social media certainly has the potential to be an effective marketing tool for IPO brokers and issuers. The trick is to strike the right approach to ensure your social media marketing efforts are not only legally compliant, but also worth your while.
Drawing on ASIC's report, as well as insights gained through our discussions with brokers (who remain largely sceptical about the attractiveness and practicality of social media to promote IPOs), we highlight six key considerations for those considering IPO social media marketing.
6 key considerations before marketing IPOs through social media
|1. Difficulty of complying with advertising restrictions and ensuring adequate disclosure||
|2. Limitations on effectiveness in certain IPOs||
|3. Cost considerations||
|4. Importance of investor engagement through establishing trust and making a human connection||
|5. If it ain't broke...||
|6. Oversight of user content is essential||
Is all this attention on social media marketing for IPOs premature?
ASIC's review found that smaller and medium-sized firms and emerging market issuers have started using more innovative methods to market IPOs, including social media. It suggests that smaller firms are often dealing with risks of not achieving spread or minimum subscription amounts and perhaps see social media as an attractive, relatively cheap way of mitigating the risk of an IPO falling over.
However, as we have noted above, doubts remain as to whether social media marketing is truly effective at converting potential leads into dollars. Although a number of issuers and broking firms have lately been dabbling in social media to promote IPOs, there is hardly widespread adoption of social media in this space at present.
A number of commentators have suggested that ASIC's focus on social media marketing is premature and out of touch with commercial reality, while others have praised ASIC for being 'ahead of the game' or at least following the lead of international financial regulators (including the US Securities and Exchange Commission and UK Financial Conduct Authority) who have already recognised the prevalence of social media usage in the financial services sector.
If one thing is clear, it's that ASIC has lately demonstrated a relentless focus on activity in the IPO space. The regulator's latest report on IPO marketing practices comes hot on the heels of its earlier publication warning that companies seeking to IPO in Australia must adopt robust due diligence processes to avoid defective disclosure in their prospectuses. You can access our summary of that report here. Similarly, if your company is on an IPO path be sure to check out our other recent article which highlights some of the issues that should be front of mind for anyone contemplating an IPO in the near future.
What does this mean for issuers and brokers?
Used in conjunction with traditional methods, social media may yet prove to be a potent promotional tool in the IPO space.
While the brokers we spoke with were clearly in favour of traditional marketing methods, they did not rule out using social media for future IPOs if the barriers described above can be mitigated or overcome. Whether social media marketing grows in popularity will depend on the extent to which ASIC embraces the "innovation that is currently taking place" and can adapt its compliance processes to "encourage digital innovation that fosters investor and financial consumer trust and confidence."2
Companies considering an IPO or brokers looking for creative ways to engage with potential investors should consider whether social media is likely to be effective in their IPO campaign. If the answer is 'yes', then it's crucial that every LinkedIn post, Facebook ad, tweet, share and 'like' complies with the letter and spirit of the law.
1 A copy of ASIC's Report 494 Marking practices in initial public offerings of securities can be accessed at http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-494-marketing-practices-in-initial-public-offerings-of-securities/
2 ASIC Report 494, paragraph 18.
This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories