In its newest disclosure on Friday, Oct. 7, daily deal site Groupon further responded to the criticism over its financial reports since its original IPO filing. The company has taken a beating in the press as critics complain about its unconventional accounting metrics, and over its CEO Andrew Mason's near-violation of SEC laws thanks to discrepancies in his internal and external communications.
According to The Wall Street Journal, Groupon unveiled the content of an August 25, 2011 e-mail written to employees in which Mason derided the press with a choice four-letter word and defended his company.
The memo was quickly leaked and excerpts from it were printed in Groupon's previous filing with the SEC last month, says the Journal. The full text's inclusion in Friday's filing gives a broader picture of Mason's anger about the treatment of the company in the press, stating "the degree to which we're getting the s*** kicked out of us in the press had finally crossed the threshold from 'annoying' to 'hilarious.'"
The memo also detailed why Mason is confident about the company's future, telling employees, "You need some ammo to argue back against your blog-reading 'friends.'"
In late August, Groupon’s PR director at the time, Brad Williams, resigned after two months on the job. At the time, The Business Insider speculated that William’s resignation may have been over the decision to purposely leak such an e-mail, one which Williams knew would be in conflict with the SEC’s ”quiet period” laws in advance of a company’s IPO.
Gene Marbach, group VP at Makovsky & Company, says that in advance of an IPO there is only one PR tactic: to keep your mouth shut. "We advise all our clients—especially in a high-profile situation like Groupon's in which every outlet is going to report on you—to stay within the prospectus book," says Marbach. "Playing by the rules may be against what your company was founded on, but you have to be circumspect."
Companies that push the boundaries of disclosing information before an IPO jeopardize a major payday and one of the company's most important moments. "Who knows what can happen by Monday— the market might be down 500 points and you're going to try and get an offering off," says Marbach. "We're in a very fragile time right now from an economic standpoint, and you can’t mess up something like this from a communication standpoint."
With its fourth IPO iteration, and with banks like Goldman Sachs as the lead underwriters and high-power attorneys involved, Marbach wonders how an organization could’ve let an accounting discrepancy slide through the cracks. "It looks to me like they're simply making this stuff up as they go, and it doesn't feel like a finished model," he says. "Yes, it's a young company, but it still should be buttoned up and fully vetted before we get to this point."
Marbach says the negative attention may cause some investors to shy away due to accounting and management concerns. "If I were an investor and saw they changed the way they were doing something, I wouldn't feel secure the company was fully focused," he says. "Whereas you look at a well-developed company, they follow all the governing rules out there and are perceived as a fully-formed product."
Robert Ferris, executive managing director for RF Binder, says that in this market—and even in a better market—a company has to understand what investors in an IPO need. “They need to see an airtight business model, strong financial controls, conservatism and credibility,” Ferris said. “Even in instances when the company hasn't been around long and has a new business model, it has to be consistent in its communication messages both internally, externally and in every channel.”
Ferris says companies with impending IPOs can't communicate internally one way and externally another way. “You simply can't give information that would influence a buy/sell investment decision and not say the same thing externally,” said Ferris. “You have to accept that anything you say internally is going to find its way out the door.” As such, Ferris advises his clients that anything said inside company walls may as well have been published, and therefore companies must be mindful of what you say. “You can talk about what you said in the prospectus, and continue ongoing business, but nothing more.”
Though wrought with communications mistakes so far, Marbach hasn’t ruled out the possible success of Groupon’s IPO. “It will probably go off and be successful, thanks to its cachet in the daily deals industry, but they certainly didn't make it any easier on themselves."