Following on from ASIC’s report on due diligence practices for IPOs (see our earlier blog in July 2016, IPO due diligence under the spotlight), ASIC has continued this work stream with its latest review in Report 494 focused on marketing practices for IPOs.
The report includes commentary on new promotional methods for IPOs (such as the use of Twitter or LinkedIn) and recognition by ASIC of the need to refine its monitoring role with emerging social media marketing strategies.
Some key findings include:
- while generally positive on current marketing processes, some oversight weaknesses were identified for both traditional and non-traditional forms of marketing – in particular, with the need to monitor and update information across promotional platforms on an ongoing basis
- special care needs to be taken with the use of forecasts in communications to avoid misleading investors – as is also the case for the prospectus, this includes ensuring that underlying assumptions and qualifications for the forecasts are adequately identified and explained
- for emerging market issuers, ASIC identified instances of the communications including material mistakes when translated (including as to the scope of ASIC’s role)
- some issuers did not always have proper controls to ensure retail investors ultimately base their decision on the prospectus as the primary source of information – emphasising the need to include appropriate references and links to the prospectus in the marketing materials
- instances where access to the ‘pathfinder’ prospectus on websites was potentially open to retail investors (and not restricted to sophisticated and professional investors only), and
- a concern with the use of international crowd-sourced funding sites, where Australian investors may make an investment decision based on information included on the relevant site, rather than in the prospectus. This also highlights the prevailing confusion around crowd-sourced equity funding rules, which are yet to be effectively legislated in Australia (see our earlier blogs on crowd-sourced equity funding here for further details).
Interestingly, ASIC found that so-called 'traditional' means of communication – such as telephone calls, emails and use of offer websites - remain a more important form of marketing to retail investors. The review found that the use of social media is not yet pervasive and is only used occasionally, more often by small to medium-sized issuers (which perhaps reflects the differing investor profile for such issuers).
The report is a good reminder of key obligations when marketing an IPO, in particular under section 734 Corporations Act 2001 (Cth), and includes ASIC's recommendations to improve marketing practices for IPOs in the future. For example, for telephone communications, ASIC noted best practice involves implementing standard telephone scripts, recording and routinely reviewing telephone calls, and maintaining detailed records of the telephone campaign.
It is certainly a report to consider further for those that are about to embark on, or perhaps are already marketing, their IPO.