WEST PALM BEACH, Florida, March 4, 2020 /PRNewswire/ — If you’re the CEO or founder of a successful private company and the prospect of going public no longer seems as attractive as it once was, this means you’ve got your eyes wide open. Some recent high-profile IPO’s may have been a bit lackluster, but this does not necessarily mean that the landscape has changed says Laura Anthony.
In reality, when an IPO stumbles there is a distinct possibility that expectations were simply too high or possibly even unrealistic from the jump.
Optimism is a good thing in moderation. When the power of positive thinking becomes a springboard for Pubco fantasy, it becomes imperative to temper the situation with a bit of healthy cynicism. The devil’s advocate can be your greatest ally.
“I always encourage clients to do their own thinking,” Ms. Anthony said. “Whether or not the time is right to go public is a question that must be answered on a case-to-case basis. Assessing the environment is tantamount to market timing. If you don’t have a long-term perspective on your company, then staying private longer is logical. If your Pubco action plan is clearly defined, then you’re one step closer to entering the public marketplace.”
The IPO Environment Can Be Subjective
This is nothing new. Even during times when the IPO market appears red-hot, there are still numerous newly public companies that run headlong into some rough road. The only difference is that during a period of time deemed “hot,” these weak sisters get very little coverage; it’s the winners that get all the good press.
On the flip side, when the IPO environment is deemed treacherous, every last perceived shortcoming is amplified to keep the beat with other, concurring financial news stories. The media continues to report what the media has already been reporting.
There are rotating, overlapping, positive and negative news cycles in corporate finance. Once readers begin tuning out to positive IPO stories, the switch is flipped. Negative IPO feature stories take their place.
This is not to imply that corporate finance news is biased, but there is almost always an emphasis on one side of the story as opposed to an objective overview. This emphasis provides the reader with a conclusion up front and then substantiates this supposition with a series of opinions and facts.
Inversely, when a journalist operates from a neutral platform, the facts, both pro and con, are explained and the story concludes with a balanced summary, permitting the reader to draw their own conclusion and come away with a well-informed opinion.
Contemporary journalism is more competitive than ever. Reporters must, to one extent or another, adopt a sky-is-blue or sky-is-gray perspective when reporting on an event or series of events. This is done to maintain their current readership, a group that shares their opinions, and hopefully attract new readers, other, like-minded individuals.
When reporting on the IPO market, a journalist may compile data that encompasses several recent offerings, assess that data, and then arrive at what he or she believes to be a logical conclusion.
There are several flaws to this process.
Media Perspectives Can Be Predisposed
For example: three IPO’s launch over the course of ninety days, and all three fell below analyst projections, so it seems reasonable to state that the environment for initial public offerings has cooled. It is also reasonable to state that the environment is perfectly healthy but financial analysts simply expected too much from these offerings.
Another interpretive defect pertains to a sort of media peer pressure.
A well-intended and highly credible journalist sets out to portray the IPO market as accurately as possible, but since their professional counterparts are reporting that the environment is unfriendly, they may establish their conclusion before analyzing recent data. They do so in order to avoid being labeled a contrarian.
No one likes being the odd man out because there is no upside. This pervasive truth is nothing new. About 275 years ago the French writer, historian, and philosopher Voltaire stated, “It is dangerous to be right in matters on which the established authorities are wrong.”
Being the journalist who does not run with the pack may not be dangerous, but it is certainly risky.
Hindsight is Not 20/20
Another important consideration is that regardless of how quickly a journalist memorializes an event in print, it is not a current event; it is a recent event. The journalist is basing a story on one or more things that have already happened. In short, this is all hindsight. Anything that is stated beyond the scope of what has already occurred falls into the realm of forecasting, something that, by nature, is opinion-based.
News stories do not come with disclaimers, nor should they. However, in almost every piece of collateral material produced by third parties assessing the marketplace, “past performance is not necessarily indicative of future results” is generally printed in bold font.
It is not the journalist’s responsibility to remind readers that news stories are hindsight. This responsibility falls on the reader.
News Undergoes a Paradigm Shift
Until approximately 1990 journalistic standards were carved in stone. The reporter’s mission was to compile who, what, when, where, why and how into a cohesive story and omit and all personal bias. Under no circumstance was the journalist to insert himself into the story. All facts were to be verified by no fewer than three sources and fact-checking was meticulous.
If there were two sides to the dynamic, both were given equal time in order to create a balanced story. When a journalist embarked on a feature story that extrapolated on one or more of their opinions, the story was clearly identified as an editorial.
In the event a journalist needed to confirm the proper use of terminology, they referenced the Associated Press Stylebook and Briefing on Media Law. This Bible of journalism was created by American journalists to standardize mass communication and assist their peers to draft clear, concise and accurate feature stories.
Then, everything changed.
Traditional journalistic standards came to be considered constraints, shackles that made it difficult for reporters to write stories that were fresh and exciting. Since old-school journalism was no longer revered, respected or even appreciated, a paradigm shift occurred and contemporary journalism was born. Journalists were not merely permitted to express their own take on any given story – they were encouraged to do so.
The advent of contemporary journalism motivated journalists to “lean” on one aspect of a topic and ignore any viable information that conflicted with their angle. It was now easier to write stories that were cutting-edge and exciting since tempered sensationalism could be used within reason.
It would be easy to make the sweeping generalization that contemporary journalism is all bad. In reality, it is no better or worse than its predecessor. As always, some journalists are better than others. The only difference is that the burden of balance has been removed from the shoulders of the journalist and put directly onto those of the reader.
If a reader truly desires to garner an accurate portrayal of any given topic, in this case the IPO environment, they must seek out contrarian stories and then compare and contrast the content. Ultimately, few readers pursue this balance and instead opt to select what camp they feel most comfortable in.
The Truth is Out There
There is still an abundance of well-researched and insightful corporate finance news in circulation; the trick is being able to interpret it. One must be able to decipher news-speak.
Let’s use the following headline as an example: “The IPO Market is in a Slump.”
We get the idea: stay out of the public waters if you control a private company. This piece, like many others, provided several examples of companies that canceled their plans to go public in 2019. It cites these pullbacks, multibillion-dollar devaluations, and referenced the public’s decreased interest in speculation. Professionals in relevant sectors were referenced and, for all practical purposes, the story holds water. It is well-written, uses several sources, and provides tangible technical data.
As always, there are two sides to this story and only one is emphasized.
These large devaluations by financial analysts can also be deemed a return to normalcy. The number crunchers went back to their offices and returned with projections that were indeed lower than before, but probably more in line with company fundamentals. These revised, more conservative projections mean more accurate forecasting with a diminished probability for disappointment. These are all good things. With these factors in mind, one could make a case that a more befitting headline for the same story could read, “IPO Market Returns to Reality.”
The following headline is more in line with traditional journalistic standards. It is devoid of “conclusion” words such as slump. The reader is not directed left or right; they are sent down a straightforward path.
This headline reads: “The IPO Market Faces New Challenges.”
Instead, new SEC regulations are cited in plain English. Various restrictions, requirements and guidelines are spelled out in great detail in a manner that can be easily comprehended and subsequently applied.
This feature story also avoids inculcation and the use or terminology that promotes one side of the story over the other. Although it is not balanced in terms of traditional journalistic standards, it is more balanced than most contemporary pieces written on the same topic.
It is pointless to argue the merits of traditional journalism versus contemporary journalism since the latter is now the industry standard. What must be clearly, and universally, understood by all is that corporate finance news, like all news, is compartmentalized. In order to formulate an accurate understanding of the IPO environment, investor sentiment, the cryptocurrency market or any other topic, readers must do their own homework and think for themselves.
Attorney Laura Anthony
Laura Anthony, Esq. is the founding partner of Anthony, L.G., PLLC, a national corporate, securities and business transactions law firm. For more than two decades Ms. Anthony has focused her law practice on small and mid-cap private and public companies, capital markets, NASDAQ, NYSE American, the OTC markets, going public transactions, mergers and acquisitions, registered public and exempt private offerings and corporate finance transactions, Regulation A/A+, securities token offerings, Exchange Act and other regulatory reporting requirements, FINRA requirements, state and federal securities laws, general corporate law and complex business transactions. The Anthony, L.G. PLLC team has represented issuers, buyers, sellers, underwriters, placement agents, investors, and shareholders in mergers, acquisitions and corporate finance transactions valued in excess of $1 billion. ALG has represented in excess of 200 companies in reverse merger, initial public offering and direct public offering transactions. Palm Beach Attorney Laura Anthony is also the creator and author of SecuritiesLawBlog.com, the host of LawCast™, Corporate Finance in Focus and a contributor to The Huffington Post and Law360.