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
  • The advertising restrictions in the Corporations Act 2001 (Cth) limit the ability of social media to be a truly effective marketing tool. Section 734 requires IPO advertisements to contain certain statements, including statements about where investors can access a copy of the prospectus and that they should consider the prospectus in full when deciding whether to take up the offer.
  • Technical limitations make it difficult to comply with the above requirements and present a balanced view of the risks and benefits of the offer. For example, Twitter posts are limited to 140 characters, including hyperlinks.
  • Contraventions of the advertising restrictions can lead to ASIC ordering remedial action and criminal liability for anyone 'involved' in the contravention. Similarly, content that is deemed misleading or deceptive can expose issuers and others to criminal and civil liability.
  • Against these limitations, is it possible to market IPOs on social media in a compliant manner? Possibly. One option is to include a link in the social media post to the prospectus or a website landing page setting out all of the required information in relation to the offer, including standard disclaimers. However, brokers appear cynical about whether potential investors will click through and act on an invitation to invest that comes via social media (more on this below).
2. Limitations on effectiveness in certain IPOs
  • While online networks are a potential source of investors, whether those leads can be converted into dollars will depend on the nature of the IPO and whether the issuer and lead manager adopt a targeted and engaging social media strategy.
  • Unless it is a high profile IPO (think Medibank Private) or the company is sitting on a 'hot' commodity (say, lithium), social media is not currently particularly effective at getting investors across the line. Most IPOs are for companies the average investor has never heard of before, so social media alone is unlikely to generate genuine investor interest.
  • In the case of high profile or 'hot' IPOs, it is unlikely that a broker will want or need to spruik it on social media. The reality is that they are unlikely to have any trouble selling the IPO to their existing client base.
3. Cost considerations
  • Posting on social media is 'free' if done from a party's standard account, but that content will not reach far beyond their immediate followers and network. To penetrate a wider audience you need to publish paid ads or 'sponsored' posts. Costs are determined based on how many potential users you want exposure to.
  • You can be quite specific about your desired audience – for example, you can target them based on their location, gender, age and existing network. You therefore need to have a good picture in mind of your likely investor base and tailor an approach and content that will engage them. For instance, are your potential investors more likely to be on LinkedIn, Facebook, Twitter or other platforms, or a combination of these?
  • According to one broker we spoke with, the costs of posting paid posts on Facebook to a reasonably wide audience far outweighed any investment return.
4. Importance of investor engagement through establishing trust and making a human connection
  • As one of our broker contacts noted, "For us, getting on the phone to the client is by far the most effective way of engaging with them. We've used social media in the past and found that we had really poor conversion rates in terms of people actually 'clicking through' and acting on the offer. It was a waste of time and money."
  • Brokers are not inclined to 'waste their time' targeting people that are unlikely to invest, or using marketing practices they deem to be a poor return on investment of time and money.
  • Prolific users of social media are not necessarily an issuer or broker's target market and may not be in a position to invest.
  • Potential investors are less likely to act on an invitation to invest that comes via LinkedIn, Facebook or Twitter (whether as published posts or paid adverts) than they are in response to a phone call or targeted email from a broker with whom they have an existing relationship (or can establish one).
  • The value of human interaction and of a good salesperson cannot be underestimated.
5. If it ain't broke...
  • It is more effective for brokers to call on their existing client base, with whom they already have a relationship, than to put out 'cold calls' via social media.
  • The lack of disruption and challengers to the status quo in the IPO broking space tends to keep brokers and issuers from branching out to explore new marketing methods. At present, the methods that have always worked continue to work, so there is little incentive to embrace social media.
6. Oversight of user content is essential
  • Issuers and brokers relinquish a degree of control over content they post on social media platforms. Social media platforms are designed with the user in mind – that is, they are designed to allow subscribers to comment, share, repost and retransmit content.
  • User content (e.g. comments or posts on a Facebook page, or 'retweeted' posts) must be routinely monitored to ensure issuers and promoters are not exposed to liability for any misleading and deceptive statements.
  • The risk is that issuers and promoters may be held liable for comments posted on their Facebook or Twitter pages if these are deemed likely to mislead or deceive investors. For example, ASIC may not look favourably on promoters who allow users to post and comment only on the company's strong financial position or some exciting new venture without countering those with comments with the potential risks or directing investors to pay attention to all of the information contained in the prospectus.
  • There is also a risk that the overall message an issuer or broker is trying to convey about the company and IPO may be compromised or subverted. Monitoring user activity to screen and respond to negative comments or claims (particularly where these are unfounded) is likely to be difficult and labour intensive.

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

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