When shopping for a major purchase, say for a new home or car, many people wisely draft lists of must-have features and optional nice-to-have features.
Compiling a list of needs and wants is also valuable to companies searching for an investment bank, especially given how frequently they fail to evaluate a key feature: the banks’ institutional sales forces. During my 18 years on Wall Street, I can’t tell you how often I saw companies make the mistake of considering the right sales force a want-to-have feature, when they should have considered it a must-have.
When it comes to investor relations (IR), remember that your company’s Internet presence often makes the first impression. In today’s frenetic capital markets environment, potential investors will often use your corporate website to quickly understand the fundamentals of your business before they decide to allocate time to a meeting with management.
The primary purpose of having a corporate website, of course, is so that you can easily share your company’s “story” with the marketplace. In order to be effective, the story must be communicated thoroughly, accurately and consistently across your website and all of your digital media, in a way that is easy for visitors to consume, understand and navigate.
One of our clients, a recently public diagnostics company, settled an ongoing royalty dispute with a major pharmaceutical company. The settlement amount was significantly lower than what our client had accrued, resulting in nearly $750 thousand upside to their P&L in the upcoming quarter.
The company assumed they needed to issue a press release in addition to the Securities and Exchange Commission’s (SEC’s) disclosure Form 8-K, but was a press release really merited?
One of the first places investors look to learn about and form an opinion of your company is your investor relations (IR) website. Often a microsite accessible from your corporate website, your IR site puts at investors’ fingertips the data and information they need to evaluate your company and make decisions about investing.
Yet IR websites do more than provide investors and sell-side analysts with numbers and percentages. Done well and meticulously maintained, they communicate who you are as a company and enable you to cultivate relationships and build trust, not just with the investment community but also with the media, your board, the corporate community, and the general public.
Management teams often hear this advice when communicating with Wall Street — under promise, over deliver. While under promising and over delivering is one of the most effective ways your company can build trust and credibility with the Street, it is much easier said than done.
Why are trust and credibility so important? In large part, the long-term value of your stock hinges on how Wall Street feels about your company and how much they can trust what your management team says. Yet building trust doesn’t come easily, and promising more than can be delivered happens to companies of all sizes and stature.
Management teams often believe that marketing their company in Europe would offer a fun, worthwhile trip and could diversify their shareholder base among international investors. While it can be productive, marketing abroad can be a colossal waste of time and money, if not planned thoughtfully. Having coordinated hundreds of non-deal IR road shows in Europe, here are a few tips from the team at Westwicke:
- Do leverage an existing trip to Europe to meet with investors. Our suggestion is to combine an existing trip for business purposes or a conference appearance with a few marketing meetings. The trip is long, so it makes sense to accomplish several goals while you’re already there.
- Do ask for help. Too many companies try to “set up” European meetings themselves or through their IR firms. The reality is Europe is a different animal and it’s impossible to know every key player in each market. We suggest using one of your analysts to set up the trip. Almost all investment banks have a dedicated European sales force that is much more qualified to produce a quality set of meetings. As a quick aside, don’t hire a third party to set up the trip. You will likely end up with a lackluster schedule.
- Do focus on quality vs. quantity. We believe that more isn’t necessarily better; better is better! Often, the European sales forces at these banks are so excited to get a management team in their territory that they want to extend the trip for several more days to see a number of cities. This is a bad idea for two reasons: First, the cost of travel to these secondary cities can be off the charts. Second, these meetings often have diminishing returns. Stick to the major cities and target the best accounts.
- Do insist that the salesperson attend the meetings. Salespeople play an important role in the success of these trips, as they can give valuable insight into each meeting. For example, before every meeting, make sure you get a summary about each person’s level of interest, investment style, peer ownership and any other relevant factors that can help with the discussion.
- Do maximize your time, i.e., logistics matter. As you think about the trip, recognize that many large cities are difficult to maneuver. London, for instance, is much like Manhattan. Meetings can be all over the place and, if not properly coordinated, getting to each location can leave you missing some meetings and late for others. Make sure the investment bank setting up the meetings in each city arranges a logical and efficient schedule (which is yet, another reason to ensure the salesperson attends).
If it seems to you that there is an investment banking conference every week, you’re just about right. Investment banks routinely hold investor conferences that tend to focus on certain industries (like healthcare or technology). A few Wall Street firms also hold what I’d call “best idea” conferences, which include representative companies from different industries.
Attending a conference can be a valuable part of your investor relations strategy. It’s a great way to get more investors to know your company, and to make vital business connections. But, if you have, say, 15 analysts covering your stock, and each one hosts a conference, that can mean you’re getting invited to 15+ conferences a year. How can you possibly accept every one of these invitations?
Before deciding “yea” or “nay” on attending upcoming conferences, it’s important to understand why they’re held. Decades ago, Wall Street’s equity divisions made money primarily by underwriting stock offerings and trading stocks. As institutional commissions have shrunk, trading has become much less profitable. However, while the buy side is no longer paying as much for trading execution or research services, buy side firms and analysts will pay for access to management. Therefore, Wall Street has strong incentives to arrange venues where they can introduce companies to investors.
As CEOs and CFOs, you no doubt think long and hard about the investment bank with which you want to work. Most management teams consider which investment bankers can best help meet their company’s capital raising and strategic needs, as well as which bank’s sell-side analysts will provide quality research coverage of the company. However, it is also important to consider how impactful the bank’s institutional equity sales force is.
Whether you are already public or thinking of going public, you want to work with a sales force that has real influence in the investment community. Importantly, you want to engage a team that has solid, long-term relationships with those investors who will be buying your stock.
How do you balance your investor relations (IR) activities with the other demands on your time as a management team? How can you best align your investor relations efforts with your overall corporate strategy and messaging? Here are several tips to help ensure that the strategic investor relations plan you create at the beginning of the year will deliver the desired results:
- Define your goals. In order to be successful you must identify the outcomes you want to achieve. Decide if you are trying to increase your visibility, broaden your shareholder base and/or increase sell-side coverage. Be specific with your goals and create metrics that you can use to evaluate your effectiveness.
- Allocate your time. As a senior executive of a life sciences, medical technology or healthcare services company, you have many demands on your time. Ask yourself, “How much time can I afford to devote to investor relations?” While being visible is important, you don’t want to be overexposed. Your shareholders, the Street and your employees want to know that you spend more time managing your business than worrying about your stock price. Continue Reading