Investor targeting is not only one of the most crucial pillars for a strong IR program but the hallmark of best-in-class IR. An effective investor targeting approach can boost both your company’s liquidity and visibility. According to IR Magazine’s recent Objectives and Challenges Report, targeting new investors is a top priority for IROs the world over. In fact, 75% of the 600 IROs surveyed ranked it among their top three goals for the next twelve months. And more than a quarter of nominees for the IR Magazine 2018 Awards claimed that if they had more resources, they would spend them on investor targeting.
To complicate things, the new reality of MIFID II is creating a dramatic shift in the way the buy-side and sell-side interact. As a result, companies are rethinking their targeting strategies and leveraging new technologies to be heard in an increasingly noisy and complex landscape. IR Magazine and Q4 recently brought together a panel of cross-market experts to examine their evolving and most innovative approaches, techniques, and tools for investor targeting. Moderated by Laurie Havelock, Editor-at-Large at IR Magazine, last week’s webinar (watch it now on demand) featured Amit Sanghvi, Managing Director, Europe at Q4 Inc, Gabrielle Rabinovitch, Head of Investor Relations at PayPal, Joe Racanelli, Director of Investor Relations & Communications at Sherritt International, and Geraldine Bakker-Grier, Investor Relations Officer at NN Group.
What makes for good targeting? Approaches to boosting accuracy and ROI
Identifying new investors and fully understanding the behavior of your investor has always been critical for good IR. For Gabrielle at Paypal, there “isn’t a one-size fits all approach.” First and foremost, you “need to understand how you’re perceived by your investors and whether your positioning and strategy are consistent with how you want your investment base to look.” She adds that “it’s important to develop a shareholder base that aligns with who your company will be in the next five to ten years.” She says that she actively looks for investors who can add meaningful positions to their portfolios with Paypal.
Her focus is on investors who are sector experts with the real potential to influence other investors in the space. Her core approaches involve hosting headquarters events and NDRs, and offering-up calls with the executive team to “educate prospects about the company.” For her, it’s all about the long game of developing relationships over time. “You have to be patient over a two to five year period and cultivate relationships that are consistent with how your company will change over the years.”
Geraldine at NN Group also looks to “optimize communication with the buy-side, and build meaningful relationships with shareholders.” She explains that good investor targeting is about “increasing the efficiency and impact of the IR team.” She continues that it’s essential to “take into consideration which stage of the cycle is your company. In the first years of being public, our aim was to meet as many investors as possible and make sure that our equity story was understood by a broad range of investors. Now that we’ve established our name and the market understands our story, we can be more selective about who we’re meeting.”
But no matter the stage or cycle of your company, Amit at Q4 says that “it’s about making sure the investors you speak to are carefully picked to suit your equity story.” For him, this now means that “the hallmark of a good targeting program is rooted in data.” He explains, “targeting is becoming more of a science than an art.” Looking back on ten years as an Analyst (before becoming Q4’s Managing Director), he explains that the traditional techniques of running countless filters and pivot tables often returned underwhelmingly similar results, no matter the company. He looks to the benefits of leveraging advanced algorithmic analysis as a quantifiable next-gen approach. For him, data and technology are the new keys to good targeting.
Amit describes Q4’s new AI Targeting tool powered by the sophisticated algorithms of an artificial intelligence engine. Its ability to crunch multiple data sets is undoubtedly beyond the realm of any human analyst. He says that the tool is able to “look back on over 10 years of cross-market data on company fundamentals and economic environments” to accurately determine “what triggered investors to buy stock.” Amit continues, “these algorithms analyze more than 700 factors to predict which investors are in the best position to buy your stock over the next 90 days. You can then take this data and analyze how well these investors are aligned with your company.”
Remaining visible in a post-Mifid II world: the changing relationship between corporates and brokers
Amit emphasizes the increasing importance of new and innovative tools in a post-Mifid II world. “Especially in Europe, gone are the days of relying on brokers to fill out your schedule and maximize your quality of meetings. In the past, you would work your way through a long (and often generic list from your broker.) But MIFID II throws the use of brokers into question.”
While MIFID II is first and foremost a European phenomenon, it’s also being felt across the pond. Headquartered in Toronto, Joe at Sherritt International says that while he still likes to work collaboratively with the dealer, it’s more critical than ever to be proactively involved in filling your roadshow schedule with quality prospects. It’s key to garnering strong quarterly results and maximizing your CEO’s time. He adds, “we’ve been to London several times over the last year, with some target accounts actually refusing to have a broker involved.”
Gabrielle adds, “We’ve had to be transparent with brokers about our objectives. Year after year, a lot of brokers will serve up the same investors.” Moreover, she’s found that “her strongest target investors might not always be the most monetizable clients for the broker.” She concludes, “you need to take control of the process early on.
Geraldine says that “brokers still have a role to play in bringing corporates and investors together. But the relationship is evolving. In some ways, for the better.” She explains, “In the past, brokers organized roadshows with limited input from the corporate. But now it’s very much a joint effort.” She adds that her team mainly supplements their own target lists with broker suggestions, approaching several accounts directly. Likewise, roadshows are now split between being organized by the broker and by her own team itself. She believes that the trend of companies organizing their own roadshows is only growing.
Amit interjects, “where brokers have probably felt the biggest impact is their ability to pull investors to conferences.” He cites his recent experience with a new client who saw a double-digit drop in investor attendance at a conference they had been organizing for years with the broker. “Now the corporate has decided to organize the event directly for themselves, in partnership with other corporates.” He says that overall, “IR teams are becoming much more involved in their own targeting.” And according to him, they’re using their budget to create more resources with technology.
Geraldine agrees that the “fallout of MiFID II” is “making it more difficult to get the number and quality of meetings at both roadshows and conferences.” As a result, her team is becoming increasingly selective about events that prove to attract the best investors for high-quality meetings. Joe adds, “at a recent conference in London, there were several empty slots I had to fill on my own.” With the extra challenges of making meetings spread across the city, he says that “the role of the IRO is changing. We need both science and logistics to make sure a CEO’s time is well spent.”
Optimizing pipeline and workload management to improve efficiency and impact
Amit adds that as the direct connection between corporates and the buy-side grows, a more structured approach is critical for managing your time and follow-up conversations. “Having spoken with several corporates, we’ve found that if you’re a large enough company, you’re likely becoming inundated with direct buy-side requests. And if you’re too small to be covered, you have to work a lot harder to find targets who’ll speak with you.”
His advice to corporates is to “view each conversation as a deal.” Drawing parallels to the approach of enterprise sales and marketing, he says that “you need to whittle down your funnel to select investors who you’re best aligned with (as well as aspirational investors). You also need an effective way to track these conversations, to advance the most opportune ones” (and drop those that will never convert). Geraldine adds that developing opportunities means “understanding your target shareholder base and tiering your priorities.”
Gabrielle confirms that she’s been seeing significantly more inbound requests herself. “The onus is squarely on my team for investor targeting.” Her strategy for nurturing investment decisions is to develop consistent relationships with her most suitable investors over a number of quarters.
The next generation of data, tools, and techniques
Amit says that it’s always been essential to look at “basic data like holdings and peer analysis, to see if you’re under or overweight, and then cut the list down by matching investors with your equity story and the phase of your business.” But the crucial point he makes is that “the days of pulling targets are behind us.” He says that we’re now entering a new age of push-based targeting. “As individuals, we simply can’t analyze the sheer volume of data out there in the market. But we can reap the benefits of self-learning machines that can digest enormous data.” He points to the ability of Q4’s algorithms to assess a decade’s worth of data about economic fundamentals and environmental. They can look at and learn from the data (in ways we can’t start to imagine), finding patterns, correlations, and interdependencies to formulate conclusions.”
As a tech-savvy company, Gabrielle says Paypal relies on data to inform their targeting. This includes AI data analytics. For her, it’s equally critical to “layer in their own best judgment,” in terms of their markets, what they’re trying to accomplish, and who they want to bring together in the same meeting. She cautions, “when identifying your peers, don’t limit yourself. Designing your peer groups, think about the key equity attributes for your company relative to companies that look like you.”
Amit interjects, “when we were backtesting our AI Targeting algorithms for accuracy, we noticed that they would draw targets you would never expect for a particular industry.” He asserts that another advantage of using advanced algorithms is that they look at companies without any bias about the industry. The tool “found parallels with what investors were looking for, often outside of the stock’s given industry. It’s a very unbiased (and effective) approach.”
He adds, “when it comes to peer section, a company should be open. We recently spoke to a company about their relative performance analysis.” Looking at share prices going up and down, they analyzed the contributing factors and watched for any correlating peer group movement in the market or industry at large. “Based on our algorithmic analysis, we presented them with five companies. None were industry peers. But looking back at ten years of data, we found an undeniable correlation between these five companies and movement in the stock’s share price.”
Simply put, you can’t underestimate the importance of “knowing your shareholder base” and the fact that “time is money.” He concludes the discussion, “Technology has gotten to a place of being relatively inexpensive. You can now turn on your [CMS] platform and, within seconds, get served up with high-quality targets that accurately and sophisticatedly match your company.”
Missed the live webinar? Watch it now, on demand.
