A capital increase is a financial operation that enables a company to raise funds from shareholders or outside investors.
For a listed company, a capital increase is not just a purely financial operation:
it’s also a key communication moment that can reinforce, or on the contrary weaken, the market’s perception of the company.
Why can a capital increase be applauded or punished by the market?
The market reacts positively to a capital increase when it is perceived as a sign of the company’s good financial health. It can be motivated by various reasons, such as:
- financing growth or diversification projects,
- repayment of a debt,
- a reduction in the stake held by a minority shareholder.
On the other hand, the market may punish a capital increase if it is perceived as a sign of weakness. It can be motivated by reasons such as:
- insufficient cash position,
- financial difficulties,
- an uncertain strategy.
How can a capital increase reinforce or invalidate the equity story?
The equity story is the founding narrative that forms the basis of a company’s stock market history. All the announcements made over the course of the stock market’s life feed, illustrate and prove the value of this story. Thus, a successful capital increase is an operation that continues the company’s equity story, demonstrating that it is capable of raising funds on the financial markets while reaffirming its objectives and vision for the future.
On the other hand, an unexpected and ill-prepared capital increase may invalidate the company’s equity story. The dilution of existing shareholders may then be deemed too great, and the market may lose confidence in the company.
Which targets: existing or new shareholders?
Communication about a capital increase is aimed at two types of target:
- existing shareholders, who must be convinced to participate in the operation,
- potential new shareholders, who must be attracted by the company and its project.
The importance given to these two targets will depend on the type of operation and the objectives sought.
A complete package, as for an IPO: investor relations, shareholder marketing, press relations, advertising, print publishing, web publishing, events, etc.
A capital increase requires a complete communications package, similar to that for an Initial Public Offering (IPO). This plan must include the following elements:
- investor relations: management of relations with existing and potential investors, including roadshows, conference calls and one-to-one meetings,
- individual shareholder marketing: raising existing shareholders’ awareness of the benefits of the capital increase, notably through shareholder letters, a hotline, newsletters, events or an outbound call campaign,
- press relations: communication with the media to publicize the capital increase and its implications,
- advertising: communication with the general public to attract potential new shareholders,
- print edition: publication of reference documents, such as the capital increase prospectus,
- web publishing: creation of content dedicated to the operation on the company’s investors site,
- events: investor meetings, webinars, site visits.
A plan adapted to each type of capital increase
The plan will be adapted to the type and size of the operation. For example, the resources required will be very different depending on whether you choose a transaction with AMF approval and a public offering lasting a week or more, or a private placement with accelerated book building in one evening.
A capital increase is above all a communications operation. Calyptus can help you design and implement an effective communications strategy to achieve your objectives.