Corporate access and Mifid II: One year on
As with research, Mifid II was predicted to have a profound impact on corporate access when it came into force at the start of 2018. As with research, however, the real impact a year on remains mixed – and more subdued than expected.
But that doesn’t mean things haven’t changed, with research by corporate access platform ingage showing how corporate attitudes have shifted. While the pool of 61 corporates surveyed in H2 2018 isn’t huge, the findings provide an interesting snapshot of how companies see Mifid II a year into the regulation.
According to ingage, 85 percent think more institutions and corporates will arrange meetings directly – up from 59 percent during the same period in 2017. Almost two thirds (61 percent) expect to need greater IR resources to cope with this, and the platform – which operates on a system where both corporates and investors pay – also says 71 percent of corporates now believe the extra costs of arranging direct meetings should be shared, up from 44 percent at the same time in 2017. Just 2 percent of respondents to the survey say ‘nothing will change, things will largely continue as before’.
This shift toward greater direct contact is certainly something others have noted. ‘The vast majority of the buy side has seen its list of research and corporate access providers decrease over the past 12 months, and only expect further reductions in the future,’ says Elliott Berstock, European head of investor relations at Edison. As a result, ‘one of the major impacts of Mifid II on corporate access is that investors are increasingly bypassing broking firms and going directly to companies to maintain a dialogue with their investment base.’
Laura Hayter, head of policy and communications at the UK’s IR Society, adds that ‘if you are using additional brokers for roadshows, it is the responsibility of the investor to ensure corporate access is being paid for appropriately and where applicable. This is why many corporates are seeing a marked increase in approaches directly from investors, in order to avoid any potential conflict.’
Despite this trend being noted across the board, Michael Hufton, managing director of ingage, says the situation continues to change and market cap and location all make a difference. ‘The phrase I’ve always used is that this isn’t a cliff edge – it’s a change that happens over time,’ he explains. ‘Most companies now say they have more incoming direct requests from investors, but they also continue to use brokers, so the challenge is how to integrate all this activity into one place.
‘For small caps, I would say it really differs by geography. In the UK, for example, I hear of corporate brokers stepping up to the plate – but with increased annual corporate broking retainers in return – while in places like Switzerland, I hear of small caps experiencing a real downturn in service levels.’
Hayter agrees that house brokers continue to play an important role for IROs – particularly when it comes to roadshows – but says corporates should be proactive about understanding which firms have deals in place with which investors. She also says they should take greater control of the meeting process.
‘We would recommend all corporates take steps to understand which of their shareholders and potential shareholders their broker(s) have corporate access arrangements in place with,’ she says. ‘Many investors are choosing to arrange meetings themselves, as the responsibility is theirs to make sure the meeting has been ‘paid for’ and many are exercising great caution not to make any errors on this point.
‘In addition, giving a few days’ roadshow to a non-house broker will now be much harder, as they will in theory be restricted to arranging meetings only with investors with whom they have a signed research/corporate access agreement – therefore it is important for IR to retain control over targeting and roadshow schedules to ensure there are no gaps, and efficient use is made of IROs’ and management’s time.’
The IR response
Despite Hayter’s assertion that investors are taking great care around Mifid II payment rules, Guido Pickert, head of IR at German small-cap Aixtron, says ‘some brokers are starting to proactively tell you they don’t see a problem arranging meetings with non-customers.’
He adds that he has always taken an assertive approach to roadshows, saying the big broking houses in particular had already realized that corporates were becoming more critical of meeting lists and had become more amenable to arranging meetings with non-clients. ‘We always add names we know in certain cities or regions and then we trust the broker to approach them and try to arrange a meeting,’ he says – adding that this system has worked pretty well.
Pickert is, however, still making sure he’s prepared for change. Agreeing with Hufton that the new reality won’t come as a ‘big bang’, he notes that 2019 is the first time he’s thought ‘OK, now I really see we’re getting closer to some kind of realignment of the market’ – and one avenue he’s exploring is technology: looking at online platforms that can help with corporate access and targeting and create greater independence in these areas.
This increasing interest in technology and external support is also something the IR Society has noted. ‘We are starting to see company IR teams respond to this change in market dynamics through increasing personnel and technology resources around investor targeting and roadshows,’ says Hayter. ‘But time and budget constraints still remain a challenge for smaller, less well-resourced companies.’
Tips and tricks
So just how hard is it for IR teams to take corporate access in-house? ‘What we’ve seen is that it’s easy for corporates to take some of their corporate access in-house, but not all of it,’ says Hufton. ‘The most common scenario is to use brokers for the majority, but with some direct contact in the mix’ – something he says the existing IR team resource can typically cope with.
‘The trouble with the hybrid approach is integrating it all into one itinerary, especially if multiple brokers need to be used in a single location,’ he adds. His advice? ‘Adopt a state-of-the-art IR customer relationship management (CRM) system’, though he does add: ‘But I would say that.’
Hayter, however, agrees on the need for a good CRM system. As sell-side support has fallen back somewhat, ‘it is important for IROs to ensure they have adequate insight into understanding who they should be targeting, to ensure they are engaging with shareholders and potential holders in all relevant markets in the most efficient way,’ she explains. ‘Resources permitting, targeting efforts can be managed with additional administrative help – including a good CRM system.
‘And when responding to direct meeting requests, IROs should act as a filter, and so prioritize limited executive management time,’ says Hayter, offering the following list of considerations:
- Which member of management or IR would the investor they like to see and who is most appropriate?
- The current size of shareholding or whether is this a non-shareholder
- Peer shareholdings
- Meeting history
- Investor profile
- Investment style.
‘If meeting a potential investor for the first time, we would suggest offering a meeting with IR only,’ advises Hayter. ‘Furthermore, we recommend managing other general or non-urgent requests as far as possible around set events such as post-results roadshows, capital markets days and conferences, and so on. And always request feedback directly from the investor following a meeting.’
Finally, Hufton has some advice for potentially stressed IROs looking to pack the roadshow schedule: chill out a bit.
‘I know the standard protocol is five meetings in a day, and if it’s not full the IRO could look bad in front of management,’ he says. ‘But from my perspective and nearly 25 years in the business, you’re better off avoiding these packed schedules, padded out with ‘cannon-fodder’ meetings – frequently with people who have no interest – that waste time that could otherwise be spent properly writing up or following up on the interesting meetings.’
Instead, Hufton advises careful advance planning of who you want to see and allowing long enough to ensure those meetings cover all the issues. ‘Tell managers in advance that there will be a gap of an hour or two and plan somewhere to sit so they can get through some of the day’s email traffic,’ he advises. ‘This strategy is much more likely to generate new, long-term shareholders than lots of rushed meetings with people who aren’t really interested – or worse: are just gathering intel for a position in a rival.’