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Key Questions to Ask When Selecting an IR Firm

Posted on November 13th, 2013. Posted by

Hiring an investor relations (IR) firm isn’t easy because it’s not a simple decision. A tremendous amount rides on the relationship you are able to cultivate with investors and shareholders, so you need total trust and confidence in your IR partner.

Making the choice more difficult is that IR consulting firms vary widely, and what gets promised up front doesn’t always hold true. The spectrum ranges from firms that offer IR as one of many services to those that specialize only in IR. While it might seem reasonable to just pick one and get to work, the reality is that the relationship you build with investors and Wall Street represents a core part of your business strategy with a real impact on your perception in the markets.

How can you choose wisely? Finding the right fit takes time and research. IR firms aren’t one-size-fits-all, and the right choice requires you to stop and ask some hard questions, starting with these essential eight.

Does the firm focus on investor relations?

A number of firms include IR as one of many specialties. Given that IR involves a hefty amount of communications, it often gets added to the list of services offered by a public relations (PR) firm. Companies sometimes think of this as a cost-savings mechanism — i.e., I can get PR and IR for the price of one. What ultimately happens, however, is that IR gets put on the backburner as the PR firm focuses on its real specialty, public relations—which is very different from investor relations.

IR is a complex, interdisciplinary field that involves not only communications but also finance, policy, business strategy, and more. In the same way you would look for a specialist when you need the best doctor, look for an IR specialist when you consider how to manage your relationships with investors and Wall Street.

Can they help you from both a strategic and tactical perspective?

This is a big one because there’s a significant difference between a strategic and tactical approach. Both are important, but a number of firms rely too heavily on tactics and too little on strategy. 

In truth, tactics and strategy are intricately connected, and IR involves more than scheduling meetings, registering for conferences, and writing press releases (tactics). A number of firms can perform these tactical services. How effective these services turn out to be, however, depends on how aligned they are with your company’s IR strategy, the foundation upon which everything else must stand.

What specific knowledge do they have of your industry and the key investors in your industry?

From retail and technology to financial services, most industries are multifaceted and broad, and healthcare is no exception. Take caution of companies claiming expertise without substantial knowledge and experience to back it up. Within our area of focus, healthcare, there are a broad range of subsectors — life sciences and biotechnology, medical technology and diagnostics and healthcare services. These fields, though grouped under the umbrella of healthcare, are vastly different in terms of how they are analyzed and valued by the Street. 

IR generalists often shift from one industry to the next over a single day. For instance, it’s not uncommon for one to work on healthcare in the morning, technology in the early afternoon, and consumer products at the end of the day. Each of these industries (not to mention the subsectors of these industries) involves a separate set of bankers, analysts, investors, and stockholders.

Ultimately, you want a firm with a knowledge-driven approach, meaning it devotes substantial time and resources to staying on top of the field, knowing the existing and emerging players, and understanding the dynamics that are important to this industry. This relates to the old “quality over quantity” adage, in that a firm focused on your particular industry will nearly always pull in stronger results than a firm that spreads itself thin.

Do they have relevant Wall Street experience?

Investor relations requires a strong understanding of the language and terms used on Wall Street, the questions analysts ask, and the storylines that attract the attention of investors. Look for a firm with deep experience across the board, not just one side of the Street. 

What does that mean? Wall Street involves a lot of moving parts, each one complex and full of ambiguities. You want a team with experience in as many Wall Street areas as possible — portfolio managers, sell-side research analysts, buy-side analysts, investment bankers, institutional salespeople, and equity capital markets professionals.

IR can’t be picked up from a textbook, and a team without real-life experience can only guess how the cogs in the Wall Street machine actually work.

Will they commit to long-term senior level attention?

Given the intricacies of Wall Street and the many regulations and compliances that come with it, long-term experience in the field is critical. Find a firm that not only promises but also delivers focused attention from senior management over the entire course of your relationship, not just during the initial “courtship.” 

Too often, senior staff members get involved only at the beginning of the project, and then hand it off to junior staff. Take a hard look at the staff members (and their credentials) featured on the firm’s website. How senior, or junior, is the team? What staff members will be involved with your project, and how?

It’s fine to have junior staff supporting senior staff, or even doing a good chunk of the work. But you really want unbridled access to at least one senior staff member who knows both the big picture and the particulars of your company.

Do they have the infrastructure and support staff to provide full service?

While access to senior staff is essential, you don’t want to choose a firm without any support staff. Small firms made up only of senior staff members often take on more than they can handle. From the company side, work gets bottlenecked and your IR team is unresponsive. 

An IR team that can collaborate works best because it’s too difficult for an individual, however senior and vetted, to have the bandwidth to do everything it takes to do IR well. Make sure your main contact isn’t just two years out of school, and that the firm is adequately staffed to handle your needs in a timely fashion.

What percentage of new clients come from referrals?

As in recruitment and hiring, referrals go a long way by validating (or invalidating) promises made in a firm’s marketing collateral. Does the firm really understand how Wall Street works? What results can they demonstrate? What long-term clients can they claim? What acquisitions have they enabled? What’s the client retention rate? 

Though brand awareness and name recognition have their place, referrals often mean more. Many CEOs and CFOs choose an IR firm because someone they trust (an investment banker or a sell-side analyst) recommends it. So as you do your search, remember that just because a firm has been in business 15 to 20 years doesn’t mean they’re right for you. Talk to your most trusted advisors, do your research, and pay attention when someone you respect suggests a firm.

Do their current clients represent comparable peers to your company?

A firm’s client list can reveal a lot about how well it operates and what results it brings in. Are a good chunk of the clients “fallen angels” or companies of questionable status? If so, keep in mind that many of these companies have nowhere else to turn. Would you consider the majority of the client list your peer group? If you answer yes, that’s a good sign that the firm knows (and has proven experience in) your industry. 

Management teams sometimes worry about conflict of interest. My advice is — don’t let that sway you. Many IR professionals, especially those with Wall Street experience, are accustomed to signing non-disclosure agreements (NDAs) and managing confidential information. Further, the fact that a firm is working with your competitors is actually a really good sign that it’s deeply involved in that space.

As you go through the process of finding the IR partner, use these questions — and the responses you receive — to guide your decision. If you need healthcare IR expertise, get in touch with Westwicke to learn about our IR approach.

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ICR Westwicke is the largest healthcare focused investor relations firm in the country. We provide customized investor relations programs and independent capital markets advice to small and mid-cap healthcare companies.

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