It used to be the case that public companies would rely on the sell side to provide them with access to the investment community. The broker would act as the matchmaker arranging meetings and introductions between corporate management and the investor. This model is now looking increasingly outdated and inefficient. In this piece, we will discuss some of the changes that we have seen in recent years and the impact that has had on this important element of a company’s investor relations efforts.
The ability of a company management team to get in front of a wide range of investors to articulate their corporate value offering is one of the most important aspects in keeping shareholders appraised of their investment and attracting new shareholders to broaden the shareholder register.
In recent years, companies have increasingly had to develop their own in house corporate access capabilities or, engage with specialist investor relations firms like Stellium in order to fill a void that has been growing increasingly wide in recent years. A combination of declining secondary market trading revenue at banks and brokers has forced them to focus much more on primary revenue (think “capital raising”) and advisory mandates to pay salaries and bonuses. This essentially means that if a corporate client is not raising new money then they will (in all likelihood) cease to be a focus for sales desks, analysts and bankers until such time as it becomes necessary to go back to the market for a fresh capital raise.
Regulation is making IR more difficult
This problem has been compounded by structural, regulatory driven changes to the way that investors gain access to corporate management teams as well as broker research. The MiFID II regulations that have now been in place for some time have had a much greater impact on small and mid sized companies than their larger listed counterparts. A recent Financial Conduct Authority review of MiFID II impacts found that some asset managers were taking a very cautious approach including:
- blocking all marketing material or free trials from new research providers
- not accepting ‘issuer-sponsored’ or house-broker research, which is particularly important for SME issuers
- refusing to attend trade association member events
This obviously impacts the ability of the traditional broker to be effective in performing a traditional IR function. Factors like unattributable feedback following broker meetings would be one such disadvantage of relying on a broker to undertake investor relations activities on a company’s behalf. The corporate client generally leaves the meeting with little in the way of actionable intelligence on how the investment proposition was received (or whether they should modify their messaging to be more effective). Indeed, the FCA review referenced above made the observation that “Many corporate issuers have increased the resources they provide to investor relations, and told us the quality of corporate access engagement has improved”. This is where a firm like Stellium can add real value to a corporate issuers IR strategy.
Advantages of hiring a specialist investor relations consultant
Hiring an in house IR team is an expensive exercise. Using a retainer based consulting model allows a small to mid cap company (where budgets can often be stretched) to achieve a disproportionately improved Return on Investment relative to trying to bring that level of expertise in house by hiring employees. We strive to deliver value to all our clients. We are not cheap but we are working every day to deliver value to our clients.
At Stellium, we work with companies listed on our local exchange (London) as well as numerous companies listed on international exchanges (Canada, Australia and the USA). We are always happy to have a preliminary conversation with internationally listed firms who are looking for a strong investor relations partner in Europe (something that is invariably preferable to engaging a IR partner based outside Europe).
We have a comprehensive understanding of the investor landscape and the various tools and methods at our disposal to ensure that our client’s message is reaching the right audience. We work closely with our clients to implement strategies utilizing a range of techniques to ensure that their IR goals are fully achieved. We work seamlessly with other advisors and the sell side community whilst ensuring that a client’s internal investor relations infrastructure is as good as it can be, allowing brokers and other advisors to focus on what they do best.