ValueRich, Fall 2005
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Don't Forget the 'Public' In Public Company
By Lester Rosenkrantz
President, Cameron Associates, Inc.
Functional investor relations programs are not luxuries reserved for large organizations; they are a necessary part of running any public company's business operations.
Every CEO, CFO and sometimes, to a lesser extent, COO of a small public - or soon-to-be public - company must devote serious time and attention to its investor relations effort and should consider hiring a professional investor relations firm to help them do so.
Investor relations are extremely important to three types of companies: public companies experiencing rapid growth or going through a turnaround; pre-IPO companies; and companies that have completed a reverse merger into a shell corporation. Growth companies need an advocate to position them on Wall Street, while turnaround situations need experts who know how to reposition the changed corporate story to investors.
Companies that are about to go public have the sponsorship of their underwriters, but they also need the support of the Wall Street community after going public to buttress the momentum the underwriters have begun.
Companies that have merged into a shell need the most help from investor relations firms. They generally lack support from underwriting firms and other financial sponsors. Since shell companies typically don't have the bandwidth to support active marketing of their stock, they tend to find themselves orphaned in the public market fairly quickly.
Many will argue that sophisticated investor relations programs are only for large multinational corporations with deep pockets. True, some big public companies may have investor relations departments with staff that outnumber the total number of employees of a typical micro-cap company. But smaller companies can learn from their bigger peers.
One of the reasons large organizations dominate the public markets is because they recognized early on that investor relations is an area of expertise that requires dedicated personnel to accomplish successfully. In fact, the only public or pre-IPO companies that do not need investor relations firms are organizations that are not interested in new markets or growth.
IR Advantages for Smaller Companies
Many companies hire investor relations firms because they need a systematic approach to getting analyst research coverage. Research coverage is extremely difficult for a company to get on its own. With thousands of companies clamoring for attention from Wall Street every day, it is critical to have an IR firm that knows its way around the Street and can make introductions to a targeted audience.
In addition, a company can expect its investor relations firm to achieve the following:
Develop the corporate story. This includes writing and editing press releases, conference call scripts, fact sheets and other corporate materials for correspondence with the Street. The IR firm should also prepare and coach management on conducting productive conference calls with the investment community.
Build a database of investors and analysts. This involves identifying key investment executives who will be open to receiving regular communications and updates from the company.
Facilitate relationships. The investor relations firm is responsible for building the company's relationship with Wall Street. This includes arranging meetings with receptive buy- and sell-side investors; seeking invitations to present at conferences and investment forums; encouraging investment community participation in conference calls; responding to shareholder inquiries; and encouraging analysts and investment letters to publish reports on the company.
Provide constructive feedback. The investor relations firm is the intermediary between a public company and Wall Street. As such, the firm should follow up with analysts and investors following meetings, conference calls and other presentations to gauge the Street's reaction to the company's messages. It should also provide quarterly updates on institutional purchases and sales, as well as detailed reports of various IR initiatives and their results.
Every company, regardless of size, should periodically assess whether or not its investor relations program is having a positive impact on its relationship with the financial community. There are seven questions senior managers can ask to help gauge the effectiveness of the company's investor relations efforts:
Has the trading volume of the stock improved?
Is the stock trading at a higher multiple?
Has the base of institutional ownership broadened since implementing the program?
Are new research analysts covering the stock?
Does the company have greater access to capital markets?
Has the company increased its visibility in the business media?
Have the company's reputation and credibility been enhanced in the financial community?
Not all investor relations programs are designed to address every single one of these issues at all stages of a company's growth, but every program should achieve some of the elements all of the time. Senior management and the investor relations firm should take an active role in ensuring that the program maintains its focus, and both should be willing to fine tune the program as needed.
The Payoff
There are many worthwhile initiatives that help an emerging company. However, not all are directly tied to helping an organization flourish in the public markets.
When evaluating strategies for business development, one area that should not be compromised is investor relations. A thoughtfully developed and diligently executed comprehensive investor relations program can capitalize on the opportunities that come from being in the public markets and will deliver the Street recognition that the company deserves.
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