International NDRs: looking beyond home markets
12 September 2019
By Amit Sanghvi
With unprecedented change happening in the capital markets, IROs have an obligation to look at multiple strategies for investor outreach and network building. One such arrow in the IR quiver is the international Non-Deal Roadshow (NDR).
Your proximity to prominent money centres might influence how much importance you give to this strategy. However, organizing an NDR abroad requires a good bit of upfront research and planning to be worth the fairly significant investment of time and effort. Which brings us to the question at hand: Given the limited time and resources most IROs have today, is the investment required for targeting global pools of capital worth it?
The opportunity abroad
The U.S. remains one of the largest centers of capital around the world and there are often many unknowns associated with looking for capital outside home markets. For those reasons, it is easy for a company to keep efforts domestically focused. But what if you’re missing significant opportunities abroad?
European destinations offer access to family offices with deep pockets and Asian destinations can be rich with sovereign wealth. Companies would do well to research the availability of these sources of capital and strategies on how to access it.
With recent tectonic changes in our industry, IROs might be hesitant to consider a new strategy for targeting new investment but that is exactly what they need to be doing. Consider the industry-wide conversation around the rise of passive investors. If projections are correct that growth of this component of the equity markets will overshadow active funds one day, IROs will have even fewer sources to engage. In this scenario, IROs should at least examine how international NDRs might be one way to expand the potential pool of investors and maximise their ability to influence outcomes.
Once you’ve validated the opportunity, ROI quickly becomes the most important consideration in deciding whether to hit the international markets. In the world of investor relations, we all have limited time and everything is about return on investment. From an IRO’s perspective, this often means a return on an investment of time – whether we’re discussing how you use your time or the best use of your CEO’s very limited time.
IROs have much to consider in deciding to take management outside of their home market, including where to go, who to meet with, how to structure the meeting, who to take along, what questions to prepare management for, the list goes on. As an IRO the most immediate ROI you can generate is any goodwill from management on a process well run. Of course, the most important ROI thereafter is whether the targeted investors purchased your stock and at what price.
For each of these questions, you’ll have the choice to find the answers yourself or rely on external help. Once upon a time, you could rely on Brokers to do the bulk of the heavy lifting for you but the changes effected by Mifid II make this former resource less effective at connecting corporates and investors. As a result, the IRO must be much more informed when it comes to these markets and the players within them.
And, frankly, when depending too heavily on these outside resources, the result is often generic and, from an investor’s perspective, impersonal. Instead, consider planning an IR only roadshow where target investors are vetted for compatibility and mutual interest before being brought to management.
Even simple logistics have a huge impact on ROI. Not understanding transportation and traffic in a place you’ve never visited can mean missed meetings, an annoyed CEO and a real hit to overall ROI. And let’s not forget about making the most of your trip by knowing what to do and where to eat in a foreign city.
The value of preparation: learn what you don’t know
Establishing that an international NDR is worth your time and resources is only the beginning. The work done ahead of your trip can make or break this program. Good preparation is critically important before taking your CEO abroad. There is nothing worse than quickly destroying any potential return on your investment (not to mention credibility) with a bit of bad execution.
While targeting is an important component of any IR strategy, when it comes to international NDRs, this element is a great example of understanding what you don’t know. For instance, there are a number of investors across Europe and even Asia that aren’t credibly accessible on any of the publicly available databases used for targeting or that adopt a ‘we’ll contact you, you don’t contact us’ approach.
These investors, including Family Offices and Sovereign Wealth Funds, account for a large pool of money, so targeting these investors requires a more marketing than sales-led approach. The key is to understand where such investors get their information and making sure your company, brand and investment story are all visible in those places.
International NDRs can present significant opportunity but require careful consideration. Ultimately, if IRO’s don’t take the time to properly evaluate the value this tactic, they can’t possibly know what they’re missing. To learn more, check out our post Getting Roadshows Right in a Changing Landscape.