At Westwicke, an ICR Company, we know what constitutes investor relations (IR) best practices for one important reason: as former investors, bankers, analysts, and salespeople, we have the experience to understand information flow dynamics on Wall Street and the proven strategies. We have discussed specific best practices of a good IR strategy at length – sometimes in broad strokes and other times in greater detail. Every once in a while, however, it is important to pick your head up out of the trees and view the forest to get a sense of the prevailing buy-side perspective on IR and confirm that your intuition is in fact correct. I recently came across a global buy-side survey conducted by Rivel Research Group that underscores our qualitative expertise on IR strategy with quantitative measures. It is important for management teams of publicly traded companies to consider these buy-side perspectives as they approach IR.
Strategic Investor Relations Best Practices and Your Valuation
According to the Rivel Research Group buy-side survey, 75 percent of the global buy-side personnel (portfolio managers and analysts) believe that a good IR strategy affects a company’s valuation. In fact, the survey indicates that companies employing the best IR practices typically trade at a 10 percent premium. Conversely, companies demonstrating poor IR practices typically trade at a 20 percent discount. The challenge – or depending on your standpoint, the opportunity – is that the buy side believes only 31 percent of public companies demonstrate IR best practices.
Now of course, what makes up best practices are the concepts that we know and discuss ad nauseam on these columns: transparency, clear and concise messaging of the company’s business plan and value proposition, responsiveness, proactive dissemination of information for investors, and (very high on the list) a dedicated corporate access strategy.
Management Meetings and Corporate Access
Not surprisingly, as it relates to corporate access, the same survey indicates that over 50 percent of buy-side portfolio managers and analysts will not buy a stock without first meeting management. And less than 15 percent reported that they often buy a stock after meeting management just one time. The survey also indicates that shareholders expect to meet management two to three times a year. As rankings stack up for resources the buy side employs for purchase decision-making, one-on-one management meetings rank second only to internal research capabilities and well before earnings calls, financial filings, analyst days, annual reports, and not to mention further down the list: sell-side research.
The Importance of Non-Deal Road Shows
These data points reinforce what we already know about the value of corporate access and what we have discussed in the past. It cannot be over-stated how important corporate access is to IR best practices. Attending conferences and conducting one-on-one meetings with multiple investors is efficient and effective but they need to be coupled with non-deal road shows in multiple regions. Meeting large investors with multiple portfolio managers in their own offices allows you to expand your potential shareholder base, even under the umbrella of one large investor complex.
Visibility: Telling a Compelling Story
As you consider the buy-side perspective and develop IR best practices, maintaining visibility with a well-articulated, compelling story, and remaining consistent in your message is imperative. According to Rivel Research, the average U.S. portfolio manager and analyst is keeping track of 122 companies at any given time. They constantly monitor current positions and mine for new ideas and there is very little room on the margin. The competition for mind share is fierce and any crack in visibility, messaging, or consistency could relegate a company to the bottom of the priority heap (and off of the plate of 122).
Create Opportunity with Consistent, Persistent Storytelling
This point also highlights the habit that some managements teams form, presuming that an investor will never convert to a shareholder after multiple one-on-one meetings. It is important not to make this mistake given the constrained capacity in which investors are operating. If they continue to take the time to meet and remain well-versed on your story, you never know when market conditions, valuation, or other macro-factors could line-up and create an opportunity for them to become a front-page shareholder.
Best practices for an effective IR strategy are driven by the perspective and demands of the buy side. At Westwicke, Wall Street experience gives us the qualitative insight to design and execute such strategies. Every once in a while, it is comforting to see quantitative data that supports our inherent protocol. For a deeper dive into investor relations, download the eBook: Insider’s Guide to Investor Relations.