One of the more common things we hear from current and prospective clients is their desire to get more coverage from the sell side. This is particularly the case when the company is smaller in size, is a “restart,” or is an international company looking to list on one of the U.S. stock exchanges. Here are a few things to consider as you look to expand your sell-side coverage.
Understand that it is a process. Gaining new sell-side coverage can take time. Like attracting a new investor, getting new sell-side coverage is often the result of multiple meetings and building a strong rapport with the analyst and his or her firm. We encourage our clients to set-up initial introductory calls and follow those up with more in-depth face-to-face meetings where you can take the analyst through your investor deck. Ask the analyst if you can do a “teach-in” with his or her institutional salesforce and be sure to meet with that analyst’s bankers.
All of these things are part of the larger process. An analyst wants to cover “franchise” names, but they also want to cover stocks they know the salesforce will support and the bankers can work with. Getting in good with the analyst’s key “constituents” can go a long way in convincing him or her to cover your company.
Go after the right analyst. Be honest with yourself, not every analyst is right for your company. Everyone wants the big firm to cover their company, but those firms may not be the right fit. One of the first screens we do when we are tasked to uncover new sell-side targets is look at your peer group of companies to see who actively covers your space. This group knows the themes, understands the market trends and will generally have a better appreciation for your business.
Beyond that, we look for the analyst who has the bandwidth to cover additional companies; currently covers companies in a similar market cap range as your own; is part of a bank that can offer unique outreach opportunities like conferences or strong institutional sales presence; and wants to cover your company and is eager and enthusiastic about your business opportunities.
Prepare your message and simplify your story. Develop a message around your story that is differentiated. Analysts are motivated to cover companies that occupy a unique space in an area that gives them credibility with the buy side and allows them to be seen as the “go-to” expert.
They also want to cover stocks that won’t blow up and make the analyst look bad. This doesn’t mean they avoid stocks that have binary outcomes, as an analyst does tend to fully appreciate those risks and rewards. What they want, however, is proof that a company has a history of hitting expectations, delivering against targets, and reporting numbers consistently. So as a company, make sure you have your financial metrics in order, provide enough forward-looking guidance to give a clear picture of what an analyst can expect going forward, and make sure you position the story in a way that gives an analyst something to talk about.
Optimize a deal to gaining coverage. The unfortunate reality for many companies is that gaining coverage from the sell side is often accomplished on the heels of some sort of financing. As a result, we encourage our clients to take a good, hard look at the investment banking landscape prior to entering into a partnership with an investment bank.
Often the “gut” reaction is to go with the biggest bank willing to do the deal, and often that is not a bad idea. However a large bank will often cater to the larger market cap companies, which means you may not get the attention you were expecting. As we mentioned earlier, find the right analyst.
In addition, we encourage our clients try to leverage what they can out of the deal. We’ve looked at recent financings and noticed that even smaller sub-$20 million financings can, in certain circumstances, include multiple bookrunners. The ability to use multiple bookrunners not only improves the chance your financing is a success, but doing this also allows you to potentially gain coverage from multiple sell-side firms.
Attracting new sell-side coverage is certainly possible with the right strategy. But don’t expect it to happen overnight, and make sure you’re targeting analysts who are a good fit for your company. For more specific guidance on how your own organization can draw more interest from sell-side analysts, reach out.