De-Mystifying Sustainable Valuation for Public and Private Companies
In recent years many valuable communications tools have emerged to De-help businesses keep in touch with audiences such as customers and investors—websites, webinars, webcasts, social media and e-mail.
Yet the need for face-to-face management meetings with the investment community persists, in order to build credibility for corporate goals and strategies. Many private companies are attending industry-specific conferences or investment conferences to investigate acquisition opportunities, or meet potential financiers and underwriters, for example. And of course, the exhaustive nature of in-person investor road shows in the IPO process is well-known.
The non-deal road show (or NDR in industry parlance) has been raised to an art form and is a mainstay of investor relations for all public companies. For micro- and small-cap companies with little or no research coverage, getting on the road to meet with current and prospective shareholders and sell-side analysts is vital given the crowded field and competition for capital. Additionally, the need for these companies to build awareness and improve liquidity, which can be especially challenging for smaller companies, or companies in business sectors that are out of favor with the investment community, is paramount.
The non-deal road show (or NDR in industry parlance) has been raised to an art form and is a mainstay of investor relations for all public companies. For micro- and small-cap companies with little or no research coverage, getting on the road to meet with current and prospective shareholders and sell-side analysts is vital given the crowded field and competition for capital. Additionally, the need for these companies to build awareness and improve liquidity, which can be especially challenging for smaller companies, or companies in business sectors that are out of favor with the investment community, is paramount.
Putting the management team in front of decision-making investors is the main goal of the NDR, and should never be forgotten. Organizing these meetings is a balance between mechanics and strategy. They can be held in sync with management’s travel schedule, for example in concert with plant visits, board meetings or customer visits.
Meetings also are often organized on a periodic basis, focused on geographic areas of shareholder concentration or on areas where greater holdings are desired, or piggybacked onto trade shows and investment conferences
A system should be in place to provide travel logistics, investor/analyst identification and screening, preparation of materials and management, and meeting follow-up, including contact list creation and maintenance, for best effect. Pre-meeting preparation with dossiers created on investment styles, “hot buttons” and other holdings of the investor also must be available in advance.
The New Model for Investor Presentations
Communicating the corporate story to the right type of investor is key to achieving the highest sustainable valuation. The old model of investor relations is similar to a shotgun approach or a large-scale ambush, because it focuses on reaching the largest audience. It fails to look at the financial trends often times employed by the buy-side investment community.
The new and more effective model is to integrate financial analysis, valuation metrics and investor communications. Covering all avenues of quantitative and qualitative targeting methods, a solid institutional targeting program will reveal fund managers and independent money managers that seek companies with similar financial characteristics as the company in focus.
The key to success is to identify the most logical investors, communicating the value drivers that are most relevant and then introducing management to these targeted investors. The outcome is to bring the company’s story vividly to the attention of the fund managers, family offices, analysts and investors most likely to take action and make a difference to the company’s ownership profile.
Market by Market
In terms of organizing the overall meeting effort, we recommend a market by market approach. Usually, management teams seeking to create awareness through meetings with high-quality investors gravitate to the East Coast, where it is true, a high percentage of U.S. institutional money is managed. However, I recommend also targeting investors who reside in so-called second-tier cities, where many high-quality meetings can be obtained. Cities including Orlando, Chicago, Minneapolis, Milwaukee, St. Louis, and San Francisco, among others, have investors who offer the same in-depth industry and market knowledge as those in Boston and New York. This strategy provides a great opportunity for management to introduce their company’s investment thesis to a new audience as well as current holders who may want to increase their investment.
Therefore, to make the best use of management team’s time, we advise that the CEO, CFO or other designated investor spokespersons calendarize their travel plans for the year. Meetings in cities off the beaten path could yield considerable goodwill and could improve your company’s awareness across a wider group of investors.
Going Beyond the Traditional
Posting updated investor presentations and any related visual aids (such as video of manufacturing plants, overseas facilities, research labs, interviews with management etc.) is a best practice and will oftentimes result in fruitful meetings, as it allows investors to better prepare. A web provider typically can track visits to the website, providing additional investor prospecting opportunities: Did any of the firms visit the site for more color on your story? That’s an important signal of interest.
In short, know the people who have money to invest and are potentially interested in your story…..then tell that story concisely and in your own words. Again and again.