Companies considering the appointment of an investor relations firm to assist them in Europe will often be presented by a large number of apparent choices that are available. Ranging from specialist firms such as Stellium through to the more traditional Financial PR companies who also purport to undertake investor relations as part of their offering, the choice can sometimes feel a little bit overwhelming. If you’re a small company listed on the London AIM market then you will also have the appointed Broker to the business which you may expect to be doing IR work as part of their suite of activities.
Choosing the wrong firm can be a costly mistake - get it right first time
Making the right choice in the first instance can be a difficult thing to do. At Stellium, a familiar story we hear is that of a company appointing an IR adviser (or firm that “also does IR” as part of a broader service offering) only to find that they are not the right fit for the business or don’t have a firm grasp of the sector.
This can be a costly mistake as apart from the direct cost involved with hiring the firm (which can sometimes be considerable), the client loses valuable time that could be better spent building share price value. This is especially pertinent to those companies that require capital on a regular basis for product development, drilling or exploration (in the case of mining or oil & gas businesses) or for G&A expenses. Raising this capital at lower equity prices (due to ineffective IR efforts) is permanently dilutive to the shareholders and can hugely increase the cost of capital to the business. When viewed in that context, employing and paying for the right IR partner can be seen as crucial appointment. Avoidable equity dilution can be a very expensive price for the shareholders and company to pay in the long term in the long term.
What are the crucial factors to consider when appointing an IR adviser?
Every potential client will have things that are particular to them, their business, strategy and prior experience that will play a part in what they consider to be important from an IR perspective. That having been said, there are a number of common themes that companies would do well to think about prior to signing up an IR firm.
This can be factors such as:
- The firms’ experience with the particular sector and peer group of the client
- Where the client is in their evolution. What is most important to them? It could be the ability to execute a digital strategy, the strength of their investor relationships, retail adviser relationships, particular strength in a City or region
- Word of mouth recommendations from people the management team trusts
There are many more individual factors that could play a part in the decision – the essential question is: what is the IR firms bread and butter; what do they do very well and does that fit with what the client is looking for?
Cost vs value
Hiring the right IR firm should be viewed in a similar fashion to choosing an internal IR Director. The client is going to have to work with the chosen group to achieve a shared corporate goal. It’s important for the client to be up front about what they are looking to achieve through the appointment and, similarly, the IR firm should undertake a preliminary discussion before appointment to establish that they have the skills and experience necessary to meet the requirements of the client.
It goes without saying that the services provided by the IR firm will come at a cost to the client. The objective is obviously to ensure that the benefit outweighs this up front investment. The right IR partner can open doors, increase credibility and set the stage for an improved shareholder profile (and subsequently higher share price).
The right IR partner can open doors, increase credibility and set the stage for an improved shareholder profile (and subsequently higher share price).
It goes without saying that the services provided by the IR firm will come at a cost to the client. The objective is obviously to ensure that the benefit outweighs this up front investment. The right IR partner can open doors, increase credibility and set the stage for an improved shareholder profile (and subsequently higher share price).
For example, conducting a social media outreach program can significantly grow the audience for a company’s messaging and news-flow in a manner that simply was not possible in the past. Alternatively, getting a client management team in front of the right investors at the right time can mean the difference between a successful capital raising or one that undershoots the target thereby necessitating a return to the market in the months to follow.
Fees for IR services can vary widely (and so can the quality of the service provided). The manner in which fees are charged is also highly variable. Day rates, retainers, project based work and success fees based on certain pre-defined deliverables are all common practice in the industry. We have observed that by far the most common charging practice is a retainer which is charged monthly. Industry prices vary from a couple of thousand dollars per month to upwards of twenty thousand per month depending on the work required.
Stellium Services is a UK based specialist corporate development and Investor relations consulting business working with growth companies. For more information about out services and how we can help your business please review the information on our website or contact us at [email protected].