ValueRich, Summer 2005
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What makes a good company...GREAT?
By Lester Rosenkrantz
President, Cameron Associates, Inc.
Company A
General Beverage Inc. (Nasdaq: "GBII") has been in the soft drink business for eight years. The company has a strong regional presence, a solid distribution base and a strong management team. Although GBII has historically grown organically, the company has hit a plateau despite being the first to market in the previously untapped and potentially lucrative children's fortified soft drink niche.
Company B
Just down the block, Emerging Soft Drink Company (Nasdaq: "ESCX") is thriving. The company is a direct competitor of General Beverage; in fact, the two organizations are strikingly similar in the size and scope of their operations. In May, ESDX announced through a press release and information on its web site that it had entered the children's fortified soft drink space and began almost immediately fielding calls from Wall Street industry analysts, institutional investors and the business press. Its common stock is now trading higher, continuing a steady 12-month advance since it retained its investor relations firm.
If You Build it, There Is No Guarantee They Will Come!
There are many companies with good ideas, solid operations and strong revenue models. Unfortunately, a company that functions as a good business has no guarantees that its long-term growth will be of significant interest to investors.
In the competitive and crowded public markets, simply running a solid business operation is not enough to be heard above the babble of 14,000 other public companies. A company's overall business strategy must include an active and forward-thinking quality investor relations program to attract sell-side research coverage and growing institutional ownership.
Investor relations (IR) involves promoting the management and operations of a company to current shareholders, future investors and other financial constituencies. IR programs strive to communicate a company's vision and business opportunities, provide operational transparency, and convey management's confidence in a way that is understood by Wall Street.
To deliver the company's messages, these programs include the use of tools such as user-friendly company Web sites, well-written press releases, intelligently scripted conference calls and clearly executed financial presentations.
Small companies have a lot riding on their investor relations programs. Unlike their larger counterparts, small public companies cannot rely on huge advertising budgets, elaborate marketing campaigns or substantial financial news coverage to pique investor interest. To maximize public awareness and ownership, small entities rely heavily on financial communications to secure a market position for the company.
Chemistry is Critical
A company's investor communications program has a huge impact on its short- and long-term success, so it is important to get it right.
Certainly, there are organizations that perform their entire investor relations function in-house; however, companies with limited capital and human resources will find that maintaining an investor relations department is a very expensive and unnecessary proposition.
The better alternative for companies with limited bandwidth is to have an internal IR manager - perhaps the CFO - work closely with an outside firm that specializes in investor relations within its market sector. With the right IR firm in place, a company can navigate the demands of its current and future investor audience successfully. Conversely, a slap-dash IR effort has costly ramifications for the organization.
Almost anyone can hang up a shingle and call themselves an investor relations shop. There are many firms out there, each with its unique method on how to approach the financial community. It is highly recommended that you conduct due diligence on several IR firms before making a decision.
Ask for referrals from your board, current investors, lawyers and accountants - these individuals often come into contact with a variety of IR firms and should be able to make qualified recommendations.
As is the case with most significant business decisions, the search for the "right" IR firm is a very personal one. Done correctly, the IR team becomes an extension of the company; therefore, the chemistry between the team and the company's senior management is paramount. After all, management has a responsibility to lead its company's investor relations program and ensure its success.
The executive team that pursues a partnership with its IR team will ultimately be more successful in its financial communications than one that is satisfied with just a client-vendor relationship.
Although an IR firm handles some of the communication on behalf of the company, there is no substitute for direct contact between the leaders of a company and the investment community. In talking to the Street, the chief executive officer and the chief financial officer - in fact, the entire senior management team - must take care to exude confidence (not arrogance) and articulate the goals and achievements of the business clearly.
While the CEO will speak to the vision of the company, the CFO will need to be able to explain, and address questions about, the company financials. To the investor audience, a company's results are as important as its vision, leadership and integrity.
Is it Worth it?
With Sarbanes-Oxley, Reg FD and other regulatory changes in place, the cost of being a public company today can add a minimum of $1,000,000 a year to a company's overhead. Fees for exchange-listings and SEC filings, as well as for the production and distribution of interim and annual reports, press releases and other news to the financial community, auditors and legal counsel can add up quickly.
A company that is investor-friendly and forthright in its dialogue with the financial community will be rewarded with respect from the Street.
For a modest budget, a company can have an active stock marketing program that will not only raise its corporate profile among investors over time, but also will potentially contribute significantly to improved market valuation. These relationships become incredibly important when it comes time to raise additional capital, as is the case with most growth companies.
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