Special Guest Blog by Matthew Tractenberg
Somewhere along the course of the last 20 years, the relationship between IROs and sell-side research analysts changed. I can’t tell you when, or why, but it became adversarial. Opposing sides. Unaligned goals. I’m generalizing, of course, but let’s be honest with each other. If you examine the tone and undercurrents of the engagement with most of your research analysts, you’ll probably find yourself feeling as if you’re doing them a favor when you offer management access. You’re rewarding them with a conference appearance, right? You’re probably providing CEO time to the analyst with the best view or price target. I get it. We’ve all felt the same way. However, I’m going to present a different approach here, one that could very well improve external perceptions and attract new investors.
I recently published an article on adopting a sales approach for today’s IRO (you can find it here). The basic idea is that an IRO’s job may actually be more of a sales role than many of us care to admit. I would argue that while finance, communications, marketing, and strategy are all important skills for IR success, employing a sales orientation could take your program to the next level. If you accept this premise, then treat investors instead like customers, and go wherever they may be. You could open up a whole new world of opportunity.
Extending this sales approach to the sell-side community builds upon that same premise. What if we treated the sell-side community as an extension of our “sales team”? To do this, we would first have to recognize and acknowledge their economic model. With the recent changes in regulations (in particular MiFID II), corporate access is a more valuable service offering than ever before.
Of course, accurate, balanced, and insightful research and forecasts are still important to us. But for the purpose of this discussion, let’s assume they’re all buttoned up. Or otherwise focus on them first. Then, if you believe that your company could benefit from you adopting a sales approach, then gaining access to your best customers is now a key objective, right? Most of you reading this article likely travel only with your covering analysts, but why limit yourself just to the banks that cover you? Granted, if you have 20, 30, or more banks covering your stock, this may not yield the results you’re seeking. However, the market does not consist solely of AAPLs and CSCOs. For the rest of you, this concept may cause some anxiety, but stay with me.
Corporate access is a finite resource. It’s valuable. You must allocate executive time carefully. You risk your reputation by taking the CEO on the road with a new analyst. Let’s assume that you have less than 20 covering banks, and that you’re a seasoned IRO superstar. You know the corporate story. You’re confident, capable, and willing to make the pitch to one or a roomful of interested investors. Perhaps you have an executive or subject matter expert that needs practice telling the corporate story, so bring them along too.
The plan is simple: pick one or more banks that don’t cover you. Determine their appropriate head of corporate access, and reach out to them. Ask if they’d host you for an NDR in a new city. Better yet, see if they’ll allow you to attend their next sector conference to hold one-on-ones or even give a presentation yourself. Make it clear that research initiation is unimportant. That’s not your goal. Your goal is to get in front of their clients…your potential customers. The reason I suggest this path, is that the goal of the corporate access team is to put new ideas in front of their clients. You’re a new idea, right? Be aware that the sell-side analyst may actually attend the NDR, or introduce your presentation. This will require that they engage too. They’ll want to appear informed. If you do a superb job, they may even send out a note to their clients following your discussion.
Alignment of goals is invariably going to come up, if you choose this path. You seek high-quality investor meetings. However, the banks generate fees from market participants that may not be large, long-only investors. I would urge you to attempt to find balance within this dynamic. Be clear with them. Acknowledge their need to service those clients. Meet them halfway. Require that they fill half the seats with new, or long-lost names. Allow them to be successful, and they’ll sing your praises in their morning sales meeting. Maybe be more selective of participants when hosting C-suite meetings. Perhaps before you hit the road for the day, you yourself might host a hedge fund-only breakfast. After all, generating positive word of mouth is a very powerful tool on Wall Street, and the PMs most likely to “spread the gospel” are not the long-only funds in Boston.
Essentially, what I’m suggesting here is a way to make the system work for you. Identify what motivates each analyst. Work to accommodate each one in a rational, transparent way. Be upfront in your communication with them, even if you can’t offer them what they’re seeking. Enabling them to be successful is an extremely powerful tool, which isn’t often wielded in today’s environment. Somehow, we’ve been fighting the structure of both the market, and the economics of that market, to best fit our needs. Unfortunately, we’re but one seat at a full table. Why not employ a symbiotic approach that will allow multiple, if not all table participants to be successful? It may just change the way that Wall Street views you and your company.
Matthew Tractenberg is an accomplished finance and communications professional with extensive experience in Investor Relations, Strategic Communications, and Corporate Finance. This is his first guest blog for Q4.