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A number of smaller cap companies, particularly those that are newly listed, face a variety of challenges in an increasingly complex investment landscape. One useful tool to assist such companies is that of perception studies, which can be a good way to address a number of issues. So how can perception studies help?
Increasing awareness in the marketplace
Grabbing the attention – and remaining on the radar – of a broad swath of prospective investors is often the first priority. Putting this into a wider context, Foli Pontillo, global head of perception at Nasdaq IR Intelligence, says: ‘Smaller-cap companies do a good job at being accessible to existing investors, particularly those involved pre-IPO. What they often struggle with is spending enough time on the prospective investor front. Sometimes small caps are not sure how to capture the attention of non-holders, so a perception study can be really helpful in understanding what efforts to put forth.’
And though some companies may think they have a grasp of this, the perspectives of investment professionals may in fact change and evolve over time. ‘Perception studies can provide insights into how the investment landscape and behaviors have shifted and what that means for the company,’ notes Pontillo.
She offers advice on the different ways to grab the attention of investors. First, it is important to be visible and accessible at industry conferences, conduct non-deal roadshows, host investors at either the company headquarters or relevant work-sites, and to meet key existing and prospective shareholders on their own turf. A range of activities are essential to effectively engaging with existing and potential investors. Second, is the appeal of the narrative of the company. ‘Sometimes there is a need to simplify the story for those that are not as well-versed in the industry or business model,’ observes Pontillo. This comes to the third, but related point, which is differentiation – how are small caps articulating a narrative that stands out from other investment ideas – and again, feedback from investors can be useful in understanding how a company’s strategy and investment proposition stacks up against peers and what elements should be emphasized or clarified in ongoing communications with the financial community.
Another way perception studies can help is determining the right timing and content for company-sponsored events. ‘It can be challenging to optimize resources for a broad-scale event, such as an Analyst Day; a perception study here can help with determining the right timing and core focus areas for the event.’
Supporting the long-term valuation
Another important issue is that of achieving ‘credit’ for key company milestones, achievements and value drivers. ‘This is about keeping in constant dialogue with the investment community,’ notes Pontillo. ‘It is important for companies to prepare and actively communicate well in advance of an anticipated milestone; while there will be some investors that will only get involved with a company once that milestone hits, investors are more likely to gravitate towards companies that have preemptive efforts to educate the marketplace on the value proposition and have managed expectations appropriately.’
Filling in the gaps
The third main area where perception studies can have an impact is what to provide in the public domain beyond basic regulatory requirements. ‘A lot of investors require more color and context around the business performance, so it is important to not only identify information gaps, but to also see how your company compares to immediate peers and a broader set of companies in terms of supplemental reporting metrics and the messaging approach,’ says Pontillo.
Identifying investor preferences on capital allocation
Another is the limited balance sheet flexibility of small caps. ‘Many small caps have limited ways they can deploy their capital. While it is critical to maintain a healthy balance sheet and capital discipline, it is important to have a clear grasp of how key stakeholders view capital usage and how well that aligns with the company’s deployment activities,’ suggests Pontillo.
Understanding perspectives on the competitive landscape
Then comes the complexity of navigating the competitive dynamics, something that strikes at the heart of many small caps. ‘The perception study can provide market intelligence on industry peers, in terms of perspectives on the viability, differentiation, and addressable markets of core and emerging products, services, and/or technologies that they bring to market.’
In closing, ‘small-cap companies bring a tremendous amount of innovation and value-creation to the marketplace that can be underappreciated; thus, companies striving to understand investor perspectives across a wide range of topics - and take appropriate actions - can meaningfully elevate their profiles and get the market recognition that they deserve’ says Pontillo.
