Kissing frogs: How to target investors amid geopolitical and investor sentiment changes
‘Targeting is like kissing lots of frogs hoping one will turn into a prince,’ said an IR adviser speaking at IR Magazine’s recent think tank in London at the end of June. ‘So it’s best to narrow down the frogs as much as possible.’
Knowing that the number one reason cited by investors for not investing is ‘lack of fit’, IROs should not only do their homework by determining ‘where you’re going to get the best valuation’ but also consider strategies beyond traditional peer group targeting, such as more fundamental or factor-based targeting.
‘A growth investor will be looking for a 17 percent growth rate and above, a Garp investor will consider 12 percent to 13 percent, and even a value investor will expect at least 8 percent, so don’t waste time chasing the wrong funds,’ said the IR adviser, adding that with 125 stocks to monitor on average, portfolio managers will have eight and a half minutes a month to focus on your case.
A Dutch IRO whose company went public in 2014 explained how the IR team had hit the ground running at the time of the IPO, meeting as many investors as possible to share the equity story and ‘get our name out there. We then got more selective, also meeting more short-term-minded hedge funds in order to boost liquidity.’
Following the acquisition of a sizable US-based competitor, the proportion of Dutch shareholders on the register dropped to 5 percent, leaving the IRO to cater to a ‘large and stable’ base of US investors.
‘US-based investors tend to be fundamentalist and higher maintenance than European ones,’ said the IRO, who also visits Japan, where three major shareholders are located, once a year. ‘We are keen to expand the Dutch ownership but the pool is limited.’
When it comes to reaching out to US investors, IROs should also assess whether there are issues at their firm that will prevent potential targets investing, the adviser IR highlighted. ‘One sticky point is governance,’ she pointed out. ‘More generally, you’ll need to determine what your barriers are: is it you? Have you let the market down? Are there structural barriers? Is market risk on or off? If your firm in a cyclical industry?’
IROs should further be aware that US-based fund managers will be more likely to consult people in their firm before investing, so it’s rare to get an investment before the third meeting, she added.
This is one more reason to give investors what they really want in terms of information and event format. Cash flow guidance, which investors value more highly than quarterly guidance, is rarely provided by IR departments, for instance. ‘And research shows that investors value site visits and talking with operational heads the most, so these are things for IROs to consider when planning their corporate access program,’ the adviser concluded.