What the European buy side wants from US corporates
In the first of a series of articles looking at how US companies can best connect with European investors, Chantal Brennan, director of research at Davy Asset Management, and Lia Forcina, portfolio manager at BlueCrest Capital Management, give us their inside view on the topic.
What can US companies do to best gain traction with European investors?
Chantal Brennan: We focus on investing in quality companies that are growing with attractive valuations. We’ve created a proprietary measure of quality that enables us to identify these companies and which we apply to stocks globally. For US stocks, this allows us to delineate the investment universe and identify quality companies to research further.
This is important as corporate access in Europe is undergoing disruption as the age-old ecosystem between sell side, buy side and corporates has been forced to evolve due to Mifid II. As a result, US companies will need to develop more direct relationships with their investors in Europe and not rely on sell-side houses to do it for them. The change in regulation has, in effect, shrunk sell-side firms’ client lists.
Consequently, the buy side and corporates will either need to connect directly or engage specialists to help with setting up roadshows to ensure they are reaching the investor base most likely to invest in their shares.
Lia Forcina: In an ideal world, US companies would carry out more roadshow activity in Europe that involves senior management and not just IR teams. They also need to be taking a broader approach to meeting potential investors, and not just focusing on the top investors and shareholders within their particular industry.
When you meet with a company, who do you prefer to meet with? Are you seeing a trend for initial meetings to be with the IR team rather than the C-suite, and does that bother you?
LF: I personally prefer to meet with the CEO and CFO, but we are seeing more and more meetings being held with IR in the first instance. I think that meeting the IR team first makes sense on some occasions – it can often give a broader view of the company and the market concerns around it. The issue is more the difficulty in getting follow-up meetings with top management.
CB: For conference calls, having an initial meeting with IR is fine, but for second or third meetings or site visits, meeting with members of senior management is preferred. Companies are increasingly using IR – both in-house and external service providers – for investor interaction. It’s only ineffective when the outsourced IR isn’t as familiar as it could be with the firm it is representing.
It is important to note that sometimes for conference calls, companies use third-party IR firms, which means the quality of this type of meeting is more variable because the third party’s limited knowledge of the business is apparent. Consequently, as an investor, you’re unlikely to re-engage with this company again for at least 12 months. There are plenty of other stocks to choose from, particularly lower down the market capitalization spectrum.
What style of meeting do you prefer? Is there anything that adds to the experience, such as site visits or videoconferencing?
CB: I prefer a mixture of different meeting types: conference calls, videoconference calls and site visits are all useful, but for different reasons. Both sides being adequately prepared and having relevant materials makes for a better and more comprehensive conversation.
LF: I cover only financials, so my experiences might not be representative of the general market, but I’m broadly happy with either traditional meetings or videoconferencing, provided they’re organized well.
Do you have any final general advice for US companies looking to engage with European investors more effectively?
CB: Don’t rely on the sell side to find new investors for you. You need to define who your potential investor base is, either yourself or by using third parties. As companies seek to do this more effectively, there is perhaps room for a new type of liaison between participants that combines meeting organizer, IR specialist and travel organizer. They would understand the intersection between the different types of companies, funds and the investors that manage them, and would be able to introduce the right types of participants to each other.
LF: The sell side in Europe has been hit hard by Mifid II and is perhaps less engaged than before with regards to company meetings. To tackle this, more engagement with specialist conferences would help US companies meet new investors and broaden their shareholder base. If we take the financial space, for example, there is only one conference in the whole year that currently involves US companies.