Leveraging Strategic Targeting to Maximize IR Resources
27 November 2019
By Karen Greene
Many of us have seen the stat which indicates that more than 75% of IROs rank investor targeting within their top 3 strategic goals. As such, I realize that I’m not delivering any groundbreaking intel when I say that having the right shareholders in your stock is vital. Shareholder alignment is critical for management to have the leeway and wherewithal to implement and operate what they believe is the best strategy for the company.
A good IRO understands the importance of strategic targeting, as well as the inherent risk associated with passing up an opportunity to focus on the right shareholders. Our industry’s experts also know that by actively and strategically targeting the right shareholders, they can help optimize the time management allocates for investor relations. But while most IROs have a real appreciation for the importance of shareholder alignment and support, not everyone knows how to go about securing the most appropriate shareholders for their stock.
And it’s no surprise why many IROs haven’t had the opportunity to build an expertise in strategic targeting. In the past, many public companies have relied on sell-side analysts to help build out their shareholder bases. Over time, an ecosystem was created where the sell-side would act as an intermediary, bringing the buy-side to the public company, who in turn, essentially viewed the sell-side as its sales team.
Changes within the industry – especially MiFID II – have driven a seismic shift in this ecosystem, transferring responsibility for investor targeting and outreach back to the public company and requiring an additional skill set that many in our field haven’t yet cultivated. In fact, those of us with experience at severely underfollowed and undercovered companies have traditionally been the only IROs familiar with the targeting process. In the past, the only “opportunity” to build up some expertise in this area was provided to those of us who had no choice but to get really creative in getting our stories in front of investors who wouldn’t have otherwise known them.
An overlooked opportunity
Clearly, adding ownership of investor targeting to your growing list of responsibilities can be onerous. It can be a very time consuming endeavor and may require additional resources and technology, even where budgets have already been stretched. All that said, I actually think there’s a real advantage to taking control of investor outreach, which, of course, must include strategic targeting.
What many of us in the industry may have missed while the sell-side played the primary role of connector between public companies and the buy-side, is the inherent misalignment with investors brought into the stock through this process. The priority for the sell side is to deliver investors that have the greatest impact on their revenue in terms of research and trading. This agenda is not always in the best interest of the public company, which benefits the most from investors that are long in the stock and aligned with the mission of the company.
This misalignment can create a real issue that can only be resolved by taking control of investor outreach, including the very important component of targeting.
What to know going in
While lack of budget, time, and expertise can create some veritable hurdles, the advantages that result, including optimizing IR resources and management’s time, are well worth the trouble.
Here are a few things I’ve learned in my targeting efforts over the years that have proven very helpful to me:
- Start by seeking resources, partners, and especially a tech platform that can position you for success. Without question, you’ll find data and technology at the foundation of any successful targeting program. Tech-powered stock surveillance offers real-time analysis of market structure and capital flows, as well as their drivers. Access to the right platform can help you identify who owns your peers and not you, the purchasing power, sector focus and investment style of key targets as well as how their models match up with your financial story.
- Take the time to understand who your current holders are and where there might be room to adjust your current base for changes that result from your company’s evolution. For instance, if an audit of your current shareholder base shows a high percentage of value investors just as you’re on your way to becoming a growth stock. Understanding that when you hit a certain point of inflection, your current base will sell can put you in a position to proactively prioritize and court the most appropriate investors – both today and in the future.
- Understand that investor targeting is no different than sales – the more you put into building your pipeline, the better off you’ll be. A successful program greatly increases the likelihood that you’ll have shareholders that are aligned with the company’s goals and support management’s strategic decisions.
- Leverage what you’ve learned to make the most of your time and resources. A solid targeting program allows you to be much more thoughtful when considering which NDRs, conferences, and investors are worth the time and effort. Rather than flying blind, use the insights garnered through strategic targeting to allocate time and resources only to the highest value targets. Why accept 10 one-on-ones with hedge funds when you’ve already identified the top 3 long-only funds you should be meeting?
- Take control of your time and request what you want. Armed with the knowledge of who you should be meeting with, request those meetings. Rather than show up at the “insert big bank name” conference and accepting the schedule, I’ve had great success in requesting the schedule in advance, cross-referencing with my target lists and requesting that changes be made ahead of the conference. While pushing back can feel intimidating, it’s really important to assert your voice in how you and management are willing to spend your 8 hours.
However you approach this incredibly important component of your IR program, strategic targeting is the best way to attract shareholders that support your mission and are aligned with the company’s goals.
For more best practices for finding the right investors, check out the Ultimate Guide to Targeting Investors.