Going public - IPOs and the power of the brand

Above: Twitter’s IPO is selling 70 million shares, which rose from the initial price of $26 before trading started yesterday to $44.90 (£27.91) when it closed despite the company never turning a profit, and is the largest technology IPO since Facebook. Photo: Aaron Durand (@everydaydude) for Twitter, Inc

Confidence finally seems to be returning to the market as big name brands are once again floating on the stock exchange. Today [8 November], Alton Towers and Madame Tussauds owner Merlin Entertainments went public with shares priced at 315p valuing the company at £3.2bn, after Twitter^[1] ’s first day of trading as a public company yesterday valued it at $31bn (£19bn).

Meanwhile, Royal Mail^[2] ’s stock market launch last month drew in hundreds of thousands of consumers, all clambering to get in on the action.

And with many more brands rumoured to be floating over the next couple of months – House of Fraser, Saga and clothing retailer Bonmarché to name a few – businesses are relying heavily on marketers and the power of their brands to boost their share price. 

However, all too often companies do not understand the value of their brand when looking for investment, says Millward Brown Optimor vice-president of EMEA Anastasia Kourovskaia.

“Marketing and brand have a tremendous role to play in investor relations; in generating interest, eliminating uncertainty and thus driving a higher price,” she says. ”Companies sometimes don’t realise that there is inherent value in their brand and that the brand is as much, if not more, of an asset to the company than the buildings and land that it owns.

“Our analysis shows that companies that own what we define as a strong brand have consistently higher share prices and are less affected by stock market turbulence.” 

Merlin Entertainments has been building its profile in the business sector and “credibility as a brand” for the past five years, according to head of corporate affairs Sally Ann Wilkinson, allowing it to close the books on its IPO today ahead of schedule thanks to strong demand from investors.

“Our emphasis on marketing across the group is increasing greatly,” she says. “We are making several senior appointments and very much recruiting in the marketing area because, for us, having the very best in marketing is key.” The group is led by former marketer Nick Varney^[3] , who headed the management buyout of Vardon Attractions to form Merlin in 1999.

A good IPO should have a fantastic marketing plan to talk to the investors for the next six to eight months and explain what will be happening, why it will be happening, where the money raised will be going and why it is a good idea

Merlin welcomed ITV’s managing director of commercial and online Fru Hazlitt as a non-executive director last month and in August it bolstered its marketing division with the appointment of former Pizza Express marketer Emma Woods^[4] to the newly created role of group marketing director. In addition to overseeing marketing at a company level, she is tasked with building the corporate Merlin brand among stakeholders.

It is the first time Merlin has had a group level view of marketing, reflecting the need for it to be more cohesive across the business.

Wilkinson says: “We have over 40 Sea Life aquariums around the world, which do site-based activity to reflect the local culture and market, but there is also now an overarching global marketing team that is ultimately the keeper of the brand.” 

She is keen to point out that the IPO will not affect the marketing of individual attractions but by the same token there may be scope to do more under the Merlin brand in future, as it does with the Merlin Annual Pass, or where attractions can be linked together. Its London attractions, for example, have joint ticketing operations for customers who want to visit more than one site. 

She adds: “We are marketing the Merlin brand very specifically. In addition to marketing it in the business sector, Merlin has also been building its currency as an employer brand and we will certainly be continuing to raise our profile in these areas.”  

Cinema business Everyman Media Group, which began trading on the Alternative Investment Market (AIM) yesterday [7 November] in a deal valuing the company at £31m, is continually upping its marketing activity and has been building the brand over the past two to three years, says chairman Paul Wise.

“Our message has always been a bit bigger than the brand itself,” he says. “We started off as one venue in Hampstead and we got a big reputation; we now have 10 venues, but we still think the brand is bigger than that.”

The company has raised £8.1m and plans to invest in expanding the business, which prides itself on offering a different, more intimate experience compared to the bigger multiplex cinemas.

“We think [going to the cinema] should be about a lot more than simply the film,” says Wise. “The film is the same wherever you see it but we try to make a difference with every other aspect of the experience.”

Post-IPO, it will leverage the brand through partnerships and events outside of its cinemas and is shortly hosting a five-week Christmas season at the Royal Academy beginning on 28 November. It has previously held events at London’s King’s Cross and in the tunnels under Waterloo station, and plans to hold an event at Battersea Power Station early next year.

The group is also celebrating the 100-year anniversary of Screen on the Green in Islington by revisiting a famous Sex Pistols gig held at the venue 1976, which had The Clash and Buzzcocks supporting. It will feature special performances including an acoustic session from Pistols’ bass guitarist Glen Matlock.

Bonmarché, the value retailer aimed at women aged 50 and over, is also eyeing an IPO on the AIM, which is slated for 20 November, after being acquired by an affiliate of private investment firm Sun European Partners in January 2012, following then owner Peacocks’ administration. 

Since this time, the retailer has strengthened its management team, including the appointment of former Next and Marks & Spencer^[5] marketer Sean Emmett as multi-channel marketing director.

Realising where the brand’s strength lies, chief executive Beth Butterwick, says: “We have identified a number of opportunities to expand our retail offering through enhancing our product range, developing our store portfolio and optimising our multi-channel offering, providing a positive customer shopping experience and business growth.”

The Department for Business, Innovation and Skills played a key role in the Royal Mail brand’s advertising communications ahead of selling its shares in the business last month.

The campaign, which was created by The Engine Group, used instantly recognisable visual icons such as a post box, a letter and a parcel in each iteration to help establish that, although it was a government campaign, it was clearly about the sale of Royal Mail shares.

The staggered activity, which was designed to guide people through the process, first alerted potential private investors that the share offer was coming up. This was followed by information letting customers know they could now apply and that more information was available on the website, while the final part of the campaign reminded consumers of the application deadline.

It was also the first government flotation carried out digitally, enabling people to buy direct online and thus making the process more efficient.

As a result of the campaign and digital aspect, and the media hype, interest in Royal Mail shares was oversubscribed, with more than 700,000 private investors applying.

Critics have suggested that shares were grossly undervalued, however, considering the 330p flotation price closed at 489p after the company’s first day of trading, and is trading today at 566p.

Royal Mail is now running its own campaign^[6] following privatisation - its first for six years. It aims to capture the excitement people feel when they receive a parcel. The soundtrack is a version of The Beatles’ All You Need Is Love and is sung by the Royal Mail’s choir.

Kourovskaia at Millward Brown suggests the closing price on the first day is a very important indicator of how the IPO has gone. When Chinese search engine Baidu listed in 2005, its share price rose 354 per cent when the market closed, which meant the company had been greatly undervalued.

There have also been high profile cases where companies have been considerably overvalued - Facebook^[7] ’s hotly anticipated IPO in May last year^[8] is a prime example.

Kourovskaia says: “During its IPO, the market completely overvalued the financial prospects of Facebook, which is why in the week or so after its flotation, the value continued to plummet. It lost about 30 per cent of its original value in the beginning, but it did then start to rise because the company showed the potential of delivering profits.”

The social network showed record profits in its latest financial report with revenue totalling $2.02bn for the third quarter, a 60 per cent increase on the same period last year. Kourovskaia therefore predicts its share value will continue to rise.

“IPO depends on market sentiment at that point, because if the market is in a slump you are going to get less money for the same offer than if the market is rallying,” she says. “Likewise, if the market is sceptical about your prospect because you haven’t marketed your IPO properly, you are unlikely to get a high level of interest and you will not get a lot of money.”

Marketing and brand have a tremendous role to play in investor relations; in generating interest, eliminating uncertainty and thus driving a higher price

Following in Facebook’s footsteps, Twitter’s IPO is selling 70 million shares^[9] , which rose from the initial price of $26 before trading started yesterday to $44.90 (£27.91) when it closed despite the company never turning a profit, and is the largest technology IPO since Facebook.

In order to avoid any of the potential technical issues that plagued Facebook’s first day of trading and resulted in a number of lawsuits, Twitter conducted a trial IPO on the New York Stock Exchange at the end of October to help alleviate any fears among investors ahead of trading for real.

Not all brands are able to put the same steam behind marketing an IPO, however.

Following its divestment from the Royal Bank of Scotland, Direct Line Group, which houses the Churchill, Privilege, Green Flag and NIG brands, floated on the stock market in October last year, but the level of marketing was minimal, according to senior corporate communications director Jennifer Thomas.

“We weren’t permitted by law to do any marketing because of the nature of our IPO and because of the divestment from RBS,” she says. “We weren’t targeting Joe public but institutional investors, so we marketed through investor road shows.”

Marketing momentum should not slow down once a company has gone to market either, warns Kourovskaia, who says it is vital companies keep up their communication and marketing with investors as the share price stabilises.

“A good IPO should have a fantastic marketing plan to talk to the investors for the next six to eight months and explain what will be happening, why it will be happening, where the money raised will be going and why it is a good idea.”

Having a post-IPO marketing plan is essential for Helen Saunders, group marketing director at housing firm Crest Nicholson, which floated on the London Stock Exchange in February this year. (See Q&A, below)^[10]

“From a media and communications perspective, the listing is only the beginning of our relationship with the financial media, analysts and the city,” she says.

“To ensure that news flow is maintained, we have an ongoing communications strategy with the primary objective of building strong relationships across the UK media and investment fraternity.” 

Communication is also high on the agenda at local social networking site Yelp, which is headquartered in San Francisco and went public in March 2012.

It does not have a traditional marketing team and instead relies on its 150 community managers, who work in 110 cities across 23 countries, to control the brand image, talk about the brand and connect people to local businesses.

The communications team has also had more involvement since listing to ensure any marketing and communications adheres to the guidelines set out by the Securities and Exchange Commission.

No matter how companies prepare for an IPO, they should not underestimate the value of their brand and the effect that powerful marketing can have in creating a credible brand by balancing out informational asymmetry and eliminating uncertainty, both before and after going public.

References

1. ^{^} Twitter (www.marketingweek.co.uk)
2. ^{^} Royal Mail (www.marketingweek.co.uk)
3. ^{^} Nick Varney (www.marketingweek.co.uk)
4. ^{^} appointment of former Pizza Express marketer Emma Woods (www.marketingweek.co.uk)
5. ^{^} Marks & Spencer (www.marketingweek.co.uk)
6. ^{^} Royal Mail is now running its own campaign (www.marketingweek.co.uk)
7. ^{^} Facebook (www.marketingweek.co.uk)
8. ^{^} IPO in May last year (www.marketingweek.co.uk)
9. ^{^} Twitter’s IPO is selling 70 million shares (www.marketingweek.co.uk)
10. ^{^} (See Q&A, below) (www.marketingweek.co.uk)