Ten commandments for the sell side
Many an axe has already fallen as investment banks reel toward a possible recession. But one sell-side business area seems to be growing: arranging non-deal roadshows, site visits and other corporate access events. Today they account for a greater proportion of US sell-side commissions than research or execution, with Europe expected to reach that tipping point within a few years.
Most IROs now depend on brokers for all their non-deal roadshows as well as many site visits and field trips; doing it yourself is too time-consuming and costly. But remember who’s in charge – here’s a list of demands for your corporate access team.
I: Thou shalt not waste time with short-term investors
There is still an obvious incentive for brokers to set up meetings with high turnover traders who pay the biggest commissions (for which read hedge funds). ‘IR teams are increasingly aware of this,’ says Danielle Poulain, head of corporate relations at Execution, a UK-based independent broker. ‘They’re pushing to make sure their needs are met: it’s their roadshow and their management time.’
II: Thou shalt not ignore our target list
‘Banks used to have far more of a lead role in deciding who a corporate would see,’ Poulain says. ‘But corporates are now much more involved in dictating their targets. Most IR teams have a very good knowledge of who they should be seeing.’
‘IR has a ton of input and, ultimately, veto power over anything we do,’ says Lance Spacek, Deutsche Bank’s managing director and head of corporate access in North America.
III: Thou shalt target creatively
Dresdner Kleinwort looks at how a stock has been moving over the last few years. Nick Seaward, managing director of Dresdner’s corporate access team, recalls a European bank getting its growth story ready for a roadshow, noting that it had been trading like a value stock since early 2005. ‘Whether the bank liked it or not, that’s how its stock was viewed by the market, adding a new dimension to targeting investors,’ Seaward says.
Poulain, whose team sits on Execution’s trading floor, says many new targeting ideas come from strong buy-side relationships. ‘Companies should not accept being sent the same list of proposed targets over and over again,’ he suggests. ‘We use shareholder data and peer holding data, but we also add extra color from internal communication about funds that are active in a sector.’
IV: Thou shalt provide good briefings
A broker should provide a written briefing before each meeting: assets under management, investment approach and current holdings of the stock and the sector plus personal bios of individuals and questions they’re expected to ask. ‘We also encourage our institutional sales professionals to attend the meetings to prepare management with their experience and account knowledge, and solicit investor feedback,’ Spacek says.
V: Thou shalt make sure investors know the basics
Masha Eliseeva, head of IR at Russia’s Comstar UTS, likes it when investors are well prepped. ‘It’s good when brokers send our presentation ahead along with their new analyst research,’ she says.
Many of Dresdner’s roadshow meetings are organized on the back of its ‘speed investing’ events, which put IROs in front of dozens of new investors. That helps avoid subsequent roadshow questions like, ‘What does your company do?’
VI: Thou shalt take us out even with a ‘sell’
‘Until recently some companies would work only with banks that had them on a ‘buy’,’ Poulain notes. ‘That practice is increasingly frowned upon.’
‘Markets are made of a divergence of opinions,’ Spacek adds. ‘Investors hear two sides of a story and make their own decisions.’
VII: Thou shalt give feedback post-event
Some institutions don’t give feedback, others give it directly to company management. The rest are happy to talk to brokers. ‘We try to get into how the investor feels about the stock and the equity story behind it: what would need to happen to get it to be a buyer?’ says Michael Tulio, vice president and equity sector specialist at Morgan Stanley in London.
Dresdner gets feedback using an online tool it calls e-roadshow. An email goes out after each meeting, investors respond to questions online and answers are collated into a permanent archive. More feedback is often gathered in phone calls, and Dresdner gives respondents the choice of remaining anonymous, or ‘standing up to be counted’.
VIII: Thou shalt honor our feedback
Some IROs schedule a formal call a few days after the completion of a roadshow, covering what went wrong and what went right. Most corporate access teams welcome the criticism, especially if it’s tempered with some praise, and say they want ongoing relationships, not one-off events.
IX: Thou shalt make the most of a CEO’s time
‘Companies are getting much stricter about the use of senior management’s time,’ Tulio explains. ‘They regularly challenge us on the justification for meeting new funds, for example.’
‘We don’t want to just introduce them to analysts they know,’ Poulain adds. ‘We try to get them to the key trigger-puller: the most senior portfolio manager or CIO.’
X: Thou shalt not BlackBerry in meetings
‘On day six of a roadshow, after hearing our presentation many times, some analysts will play with their BlackBerry in the middle of a meeting,’ says Eliseeva. ‘They must at least try to look interested, even the 25th time.’