Why CEOs Need A Better Approach With IPO Investors

Mar 4 2014, 2:32pm CST | by

The banking industry needs to reset their approach to growing in the public markets. Despite economic headwinds and emerging complex regulations, a new Ernst & Young survey shows that institutional investors are increasingly positive about the IPO market – and the financial services industry has the highest appeal in every region; 51 percent of investors list financial services as one of the top three sectors in their portfolios.

Recently, I hosted a panel at the American Banker Association’s National Conference for Community Bankers regarding strategies for community banks to raise capital and pursue a public offering. The key takeaway was the importance of having a relationship with your investors instead of trying so hard to “sell” them. It is about understanding the criteria institutional investors are using to evaluate investment strategies, and being prepared to make necessary changes to accommodate your investors.

Consider the following steps a bank should take to better understand how to approach investors and partner with them on an offering:

1) Determine Your Cost of Capital. The first decision a bank needs to make when considering a public offering is how it will measure its cost of capital. There are numerous fees associated with going public, as well as intangible costs and benefits. All of these factors need to be assessed to determine how capital is valued, and then how much is required. Many banks make the mistake of thinking about how to raise capital before truly assessing how much backing is required. This is a critical deciding factor of the strategy for raising capital. Knowing what you need influences the audience you target – whether friends and family or a more sophisticated investor and institution.

2) Hand Pick Your Target Investors and Take Time To Know Them.  Once you determine the type of investors you need, invest time in getting to know them and think about the role they will serve. Some investors provide added value due to their industry expertise, others have deep wallets and a willingness to spend on a good idea. Others, however, may have the financials you need but may turn into hostile investors. Going public is a process and can be personal for the leadership seeking to fulfill their vision, so balance and assess the pros/cons of your investor targets.

3) Build Relationships – Don’t Just Sell – Your Investors. Short-term investors such as hedge funds or private equity investors typically look to exit your offering in five years or less; longer term investors want to stay in your stock as long as you’re performing well, relative to the market. They are vested with an expectation that you will generate a certain return for shareholders. Ensure a long-term relationship with your investors – work to create a shared vision for your bank and be prepared to make necessary compromises to fulfill mutual goals.

4) Communicate your Vision. Get your management team aligned on your vision for the company – why you are pursuing the IPO, how it extends your current mission and what the future looks like for the company. A clear story that articulates why you are going public and where you see the company headed not only reinforces your credibility, but gets longer-term investors excited about the prospects ahead.

The future of community banking depends on the ability to achieve strong, stable growth. Banks that are looking for growth through a public offering have a real opportunity to define their vision for expansion and share it with investors who will serve as partners in fulfilling that vision. To learn more about how ConnectOne Bank secured investors, see my post on wooing the public markets here.

Source: Forbes Business

 
 
 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

NASDAQ is Back at 2000 Dot-Com Bubble Level
NASDAQ is Back at 2000 Dot-Com Bubble Level
The Dot-Com force is back at the NASDAQ. It took Silicon Valley 15 years to bring back the NASDAQ to the Dot-Com Bubble Levels. With startup valuations in the billions becoming the norm, Wall Street is following up with driving up the value of public traded tech companies.
 
 
Bill Gates Tops Forbes Billionaires List Again
Bill Gates Tops Forbes Billionaires List Again
Microsoft co-founder Bill Gates is back on top of the Forbes Billionaires list.
 
 
$75,000 Apple Watch revealed
$75,000 Apple Watch revealed
When Apple's designs are not exclusive enough then there are 3rd parties who add gold and diamonds to the iGadget to make them precious. Brikk announced the Lux Watch, a diamond studded version of the Apple Watch.
 
 
Sony will not Sell Off TV And Mobile Spinoffs
Sony will not Sell Off TV And Mobile Spinoffs
Sony President Kazuo Hirai clarified on Wednesday that the company will not immediately sell off the spun out TV and mobile phone business.