During a recent breakfast meeting in Stockholm, Q4 had the chance to connect with Investor Relations Officers (IROs) to hear their thoughts on current and future investor targeting strategies in the Swedish market and abroad.
Extending outreach beyond top shareholders
Recruiting new shareholders can be an 18-24 month process. New investors often require multiple engagements in order to build trust in a company’s equity story and believe in the growth potential.
Although IROs want to diversify and reach out to more than their existing shareholders, they often find themselves constrained by limited resources. During the session, we examined current investor targeting conditions and discussed best practice strategies to help IROs improve their outreach.
Impact of shareholder composition
IROs must understand their investors’ motivations and potential investment changes to ensure they know where and when to host roadshows. For example, if a company based in Sweden has 10% of its shareholder base with one investor they trust, it may not justify a U.S. roadshow.
However, proactive outreach to the U.S. markets often becomes a priority when facing potential market volatility. If your investor base is composed solely of a few large private equity owners who may soon reduce their stakes, it warrants broadening your investor base to new markets.
So, it’s important that IROs continuously evaluate their shareholder composition and understand investors’ motivations, as this will guide decisions on hosting roadshows and expanding the company’s investor base, especially when considering different markets like the U.S.
Defining the equity story
A compelling narrative about a company’s value is essential when looking to attract new investors. It must communicate the company’s strategic vision, competitive advantages, and growth prospects in a way that resonates with investors.
These communications should highlight key financial metrics, market opportunities, and the strength of the management team. It must also address potential risks and how they are managed, be factually sound, and align with the company’s long-term goals and investor expectations.
Once an IRO creates a strong equity story, they must also be able to adjust it depending on the audience. Different investors have unique interests, goals, and criteria for investing. Some investors might be more interested in long-term growth potential, while others prioritise immediate profitability or social impact. Adapting the company’s messaging to these kinds of concerns makes an effective equity story that will resonate with investors.
Broadening your investor pool
When targeting, companies should look for investors willing to own the company at a premium. This often means companies need to look outside of core markets. Long-term investors will look at the strategic vision and show support when times are challenging. However, that does not mean the domestic shareholder base should be overlooked.
Support from local investors is a necessary starting point before reaching out to an international market. This local support not only forms the foundation of the equity story but also influences international investors’ decisions. When new potential investors or analysts see that a company seeking new investments lacks local investors, it tells them that the company may be overreaching before it’s ready for other markets.
Differentiators between American and Swedish investors
One significant issue discussed concerning local versus international targeting is the difficulty Swedish companies face when targeting U.S. investors. Due to the unfamiliarity of U.S. investors with the Swedish economic environment and its nuances, it can be challenging to garner interest from U.S. investors.
A common problem is how companies are valued in North American and Nordic stock exchanges, and how this has impacted the ability to attract U.S. investors. Despite having similar financial fundamentals, companies in North America often have significantly higher valuation multiples, such as price-to-earnings ratios.
IROs should proactively familiarise potential U.S. investors with these market differences to enhance engagement and investment opportunities. This can be achieved through targeted communication strategies, such as tailored investor presentations, detailed market analysis reports, and one-on-one meetings to effectively convey their market’s unique aspects and opportunities.
Engaging with key contacts
Sales desks
In terms of investor targeting, when IROs work with a financial institution’s sales desk, the IRO benefits in many ways, including:
- Access to investor networks: By building relationships with these desks, companies can gain access to a more diverse pool of potential investors.
- Market insights and feedback: They can provide valuable insights into current investor sentiments, trends, and preferences, which can help shape a company’s investor targeting strategy.
- Investor matchmaking: They can identify and recommend suitable matches for a company’s equity story based on their understanding of an investor’s interests and investment strategies.
IROs should initiate and maintain strong relationships with key sales desk personnel. These relationships can be achieved through direct outreach, networking, and regular informative meetings. Sharing comprehensive updates about the company, including financial reports and strategic plans, ensures the sales team is well-equipped to represent the company’s interests.
If an IRO doesn’t provide these insights or if the insights are inaccurate, the sales desk could provide inaccurate or overly optimistic information about the company to investors, leading to unrealistic expectations and a subsequent loss of investor trust when these expectations are not met. This is why all information provided to a sales deck be properly vetted and up to date.
Brokers
Another important point of contact for IROs is brokers. As intermediaries between clients and their investments, brokers provide IROs:
- Logistics: Brokers have the expertise and resources to handle the logistics of investor meetings, roadshows, and conferences. They can help schedule venues and ensure meetings are well-attended by relevant investors.
- Introducing new potential investors: Brokers often have a wide network of contacts and can facilitate access to a diverse range of investors.
- Candid feedback: They can provide IROs with insights into local market conditions, investor behaviours, and economic trends specific to each region.
Maintaining open and consistent communication is key to creating and sustaining strong associations with brokers. Providing brokers with access to senior management is also essential. This could be through conference calls, meetings, or corporate events, giving brokers deeper insights into the company’s operations and leadership.
Measuring a broker’s performance is also necessary and can involve working with different brokers to find the right fit. The participants also advised discussing their experiences with various brokers with IR peers to gauge their effectiveness.
Challenges associated with outreach
Cold outreach is critical in targeting potential investors. A common issue IROs experience is identifying the right points of contact at a given organisation. In order to effectively reach the right people within a business, IROs should, and before engaging in outreach, IROs should always do pre-work to prepare themselves for when they connect with a relevant business contact.
This pre-work includes identifying the right people to contact within an organisation, and learning about their backgrounds and views. Once they’ve found potential contacts of interest, IROs should learn their roles, responsibilities, and relevant details, for which social media platforms like LinkedIn are useful.
It’s also important to understand the firm’s values, for example, if a particular firm prefers having corporate access, their work-from-home culture, or whether there are better days to reach out; these kinds of details will affect how you engage. Investigate the firm’s website, public statements, and press releases to glean insights into its corporate values and culture.
Additional resources for improving investor targeting
As always, we wish to thank the breakfast meeting participants for their great insight into and advice regarding investor targeting. Q4 has many additional resources that can help IROs comprehend investor targeting, such as our article, “Investor Targeting Strategy: Five Critical Ways to Optimise Yours” or you can reach out to a member of our team here.
