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Apr 01, 2020

A tale of two transactions

Ben Maiden talks to two IROs about how they handled major events – an IPO and a divestment – that changed the face of their respective companies

For investor relations teams, a major corporate transaction can be both a nerve-wracking challenge and an opportunity to showcase quite how important a role they can play in the long-term health of the company. IROs may not be included in decisions to engage in M&A, restructure, go public or take some other step, but they are key to determining how those decisions are received by shareholders and analysts.

Key aspects of the IR team’s role in the run-up to and aftermath of a major transaction include ensuring the right messaging reaches the market, that realistic expectations are set and that the company is effectively positioned from a strategic standpoint, according to Erika Shouldice, vice president of investor relations and chief of staff to the CFO at Aon.

The team – or solo IR professional – may also be charged with ensuring that management, executives and/or the board are kept up to date on important developments outside the company that could impact the transaction, and with educating the company on what to expect after the deal closes.

Peter Russell, director of IR at Avast, tells IR Magazine that it is crucial to build a reputation for credibility and market belief that the IR practitioner can deliver complete and accurate information. It is important to be as transparent as possible, letting investors know about any challenges the company faces as well as passing on good news, he says.

Taking Avast public

Russell was thrown in at the deep end when it came to handling IR for Avast’s IPO in May 2018. For one thing, his first day on the job was also the day the cybersecurity company announced its intention to go public. For another, he was coming on board to launch the company’s investor relations function, something it had not previously had.

Fast forward a few months and Avast, which is based in Prague, listed on the London Stock Exchange (LSE), raising more than $800 mn – making it one of the largest tech IPOs of all time on the LSE and valuing the company at $3.23 bn. Scroll forward another 20-odd months and Avast’s share price was up by roughly 84 percent while the FTSE 250 was up by only around 4 percent over the same period. The company is now covered by 15 analysts, up from five at the time of the IPO. As an added bonus for Russell, he now has a fulltime IR analyst to help him manage a hefty workload.

Things have turned out well, but getting the company to market successfully was a challenge that highlights the importance IROs often have as a face of their company. To begin with, Russell had a lot of work to do in putting together the structure of the IR function, its policies and processes, while also getting to know the business. He started by conducting an IR audit.

‘This involved not only defining our relative value with respect to strengths, opportunities and risks, but also a commitment to understand outside perceptions,’ Russell writes in a description of the deal. ‘After analyzing financials and discerning management’s thoughts on the drivers of the business, barriers to entry and competitive advantages, we got opinions from stakeholders such as customers, vendors and analysts. The feedback helped us to uncover positive value, derisk the story and, on occasion, adjust the reality.’

An important issue for IROs at companies that are going public is educating management and employees about what that will mean for them, and what expectations the market will have of the company, Russell says as he looks back on the transaction. He notes that much of the value of a new IRO comes from managing communications from and to the market. There is also the need to manage market expectations and reach out to potential shareholders ahead of the IPO, and Russell says IR professionals can benefit on roadshows from the support of analysts at the banks running the flotation.

But that support can reach only so far, and Russell has faced a particular challenge in that Avast’s management is in Prague but the large majority of its shareholders and analysts are in the UK and the US. He manages that by operating, along with functions such as legal, from a company outpost in London. In the general absence of senior executives, he is expected to speak authoritatively on any subject analysts or investors want to address.

In the run-up to the IPO, Russell had to handle these inquiries for a company with no clear peer group and an unfamiliar business model that involves giving the company’s main product away for free. Concerns over high market valuations, interest rates and Brexit had also led to IPOs being pulled around the time Avast was going public. Despite the choppy waters, Avast successfully made it to market. In recognition of this hard work and the challenges overcome, Avast won the award for best IR during a corporate transaction at the IR Magazine Awards – Europe 2019.

Presenting the long-term view for Aon

Aon in 2017 presented its IR team with the task of communicating about a deal that was potentially not going to sit well with shareholders.

The company had several years earlier acquired management consultant Hewitt Associates and was now planning to get rid of a significant part of what it had brought on board by selling its outsourcing businesses to Blackstone for $4.8 bn. The potential concerns for investors were that the unit generated roughly 20 percent of the company’s revenue, and that its sale might suggest that the company had made a mistake by buying it in the first place.

Chicago-based Shouldice explains to IR Magazine that the key for her team was ensuring the firm’s messaging focused on long-term strategy and the evolution of the company. It was important that investors kept in mind the ‘bigger picture,’ she says. Another essential task for IR was to ensure that analysts had both sufficient and correct information that would enable them to run their models for a three-year period with comfort and consistency, she adds.

The IR team started by immediately putting out an EPS target for year-end 2018 that was in line with or higher than analysts’ expectations for 2018 at the time the transaction was announced. ‘This gave the investment community confidence that we were committed to making up the lost earnings from the transaction within a roughly 18-month timeframe before it turned accretive to earnings,’ Shouldice writes in a description of the deal.

The team then had to communicate benefits that would come from the transaction, such as accelerated revenue growth, $450 mn in restructuring savings plus productivity improvements resulting from a change to Aon’s operating model, accelerated free cash flow generation, incremental capital to invest in new growth opportunities and improved return on invested capital.

In the run-up to completion of the transaction, the three-person IR group worked closely with Aon’s communications and marketing functions to ensure all messaging was aligned during a time of considerable media attention. IR also worked with the general counsel’s office – which vetted materials before release – and co-ordinated with corporate finance to ensure targets and financials being given to the market were correct. Shouldice and her colleagues were out on the road, too, so that the entire IR team and management were available to communicate with shareholders wherever necessary.

Shouldice says the divestment is seen as a success: the EPS target was met and surpassed, the three-year restructuring plan closed in Q4 2019 and the company has more than met its planned savings. Selling what she describes as low-growth and low-margin assets has helped Aon become a higher-growth company with capital freed up to invest in acquisitions and build its own capacities. Among other benefits, the firm has a healthy stock price and the transaction has helped attract more long-term shareholders with greater focus on growth investment styles, Shouldice says.

In recognition of these achievements, Aon was short-listed for the award for best IR during a corporate transaction at the IR Magazine Awards – US 2019.

This article was published in the spring 2020 issue of IR Magazine

Ben Maiden

Ben Maiden is the editor-at-large of Corporate Secretary , an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter , covering regulatory and compliance...
Editor-at-large, Corporate Secretary