While transitioning to become a public company is a significant milestone in the corporate journey, moving forward toward this achievement, executives and employees face limitations around communications, along with an increased level of scrutiny by the SEC. Given these restrictions and heightened level of review, it is important for companies to implement a structured and comprehensive communication plan around their IPO and have policies in place to avoid any negative consequences to the IPO process. As part of this planning, let us walk through some considerations to keep in mind when disseminating information to employees around the IPO.
First, Some Background
Gun-jumping is a common term referring to a company making offers of securities before those offers are permissible, as defined under Section 5 of the Securities Act. Under Section 5, and as a short summary of the IPO timeline, an IPO registration process begins once a company engages its underwriters for the securities offering. It continues until the consummation of the offering, typically 25 days following the pricing of the securities. In between these two endpoints, the S-1 is first filed confidentially, then filed publicly; following the public flip of the S-1 is the pricing of the securities offering.
During this time, a quiet period is in effect; and consequently, employees should avoid any public statements or discussions about a potential IPO. Although companies can continue to communicate about their business and products in the ordinary course of business (consistent with past practices), restrictions around gun-jumping are complicated; as a result, it is prudent to carefully plan out communications during this time.
Tips for Messaging the IPO to Employees
- Establish designated contacts and/or spokespersons whom employees can address with regard to questions about the IPO.
- Send out an email to employees about the IPO following the S-1 flip from a confidential filing to a public filing to congratulate the team on this great achievement and to indicate that the company is under a strict quiet period.
- Create and circulate FAQs on what it means to be a public company that employees can reference.
- Host a townhall about the IPO process. A townhall forum would be a useful way to share some background on the journey of the IPO. Executive teams could also summarize the rationale to go public, what it means to be a public company, the implications of the quiet period, the steps that have been taken to get to this stage, and next steps for the IPO process.
- Offer a series of teach-ins, or have material resources available, that dive deeper into different topics, such as insider trading, material nonpublic information (MNPI), and employee stock plans. Employees have different levels of sophistication, so having more targeted sessions may lead to better discussions.
- Implement disclosures and social media policies to establish more effective parameters on the types of information that can be communicated publicly. Consider, for example, setting up an approvals process for external communications to preemptively help avoid gun-jumping or the sharing of MNPI.
Lastly and most importantly, plan ahead – executive teams should be aligned with their IR and legal teams on a timeline and strategy.
Gilmartin has partnered with many clients to achieve public company readiness. For additional information on the IPO process and planning effective communications around your IPO, contact our team today.
Ji-Yon Yi, Associate