Investor Relations and Maximizing Company Value

While there are numerous considerations in preparation for an IPO and for operating in the public environment, one area that deserves special attention is investor relations. A solid investor relations program significantly influences investor interest, understanding and confidence, and therefore has a direct impact on a company’s current and future value. Effective investor relations enhances share price when operating performance is strong and dampens a decline in the case of under-performance. Making investor relations a priority yields significant incremental value for shareholders.

A successful investor relations program establishes regular, consistent and clear communications with investors and analysts. Allocating responsibility for this role, understanding the audience, preparing the appropriate messages and making IR a systematic process within an organization are all essential for effective investor relations.

The CEO needs to take the lead and show commitment to the IR effort, and assigning responsibility is the first key step in developing your IR program. Managing IR can be time consuming as careful and consistent execution is necessary. While the CEO and CFO need to be closely involved with key investor meetings and regular calls, someone else within the organization should be appointed as the internal coordinator and go to person for external shareholders. Ideally this person will have previous experience in investor relations. For smaller firms or those who are foreign registrants, this role may initially have to be coordinated internally by the CFO, but over time a more experienced professional with specific IR skills will likely be required.

Unless you have someone in your organization with IR expertise, it makes sense to seek external guidance from a qualified IR firm particularly if you are seeking an IPO and/or a listing as a foreign registrant. An experienced IR firm can provide guidance on a number of key dimensions such as:

· developing overall messaging and positioning
· targeting investors and financial analysts and influencers
· organizing and attending road shows and conferences
· developing quarterly conference call scripts, earnings releases and corporate presentations
· writing investment profiles, investor fact sheets, monthly reports, competitive analysis and annual reports
· renewing or creating investor relations websites

An IR firm can be critical in developing your IR strategy and can also assist with execution if needed.

As with any communications program, understanding your audience is critical. As part of the IPO process, investment banks will be targeting appropriate institutions and investors for your company. Their target will be investors active in your sector who are likely to have an interest in your company. Your investment bankers can be helpful in profiling these shareholders and their requirements.

Once public, it is key to know your investors; who are they, who else do they invest in, what their needs are and what their expectations are. In addition to knowing your current investors, it is important to recognize desirable future investors. Knowing your target audience will help you develop your messages and keep in accordance with practices within your industry or sector.

Prior to an IPO, the main focus should be the company’s messaging and positioning. This includes how you describe your company and its strategy; how to set forth a positive perception of your management team, the growth opportunity that exists for your firm, how to distinguish your firm from your competition and how to clearly articulate your unique value proposition. It will be important to analyze how your competition provides earnings guidance, the key metrics they use, the overall industry dynamics and how they are viewed by analysts following your sector.

Once public, your ongoing communications will focus on company performance and major strategic initiatives. The important task will be to create and manage the appropriate expectations. You will need to evaluate best practices for producing quarterly financial communication as well as ensuring appropriate and fair disclosure. You want analysts and investors to value your company as good as or ideally better than comparables; address any misconceptions about your business and be considered reliable and consistent in communicating performance and possible variances from expectations. You want to develop a unified approach in anticipation of the key questions that will be asked and how they best should be addressed.

As a public company, you want a stable shareholder base and yet enough new interest to generate liquidity in your secondary market for your shareholders. A strong shareholder base with institutional sponsorship and a large following will affect your valuation in the market. The strength of your investor base determines the potential for additional capital to grow your business, and it will permit liquidity for management and employees over time.

Direct communication to shareholders and key influencers is essential and can be enhanced by the indirect but powerful effect of the financial media. Therefore, a strong IR program must include coordination with PR especially targeted at key financial publications. Peer monitoring of research and media coverage should be a part of this process so that it is clear how competitors are viewed and who provides coverage for your sector.

A successful IR program requires commitment by the CEO, appropriate resource allocation and a well-designed program of regular and consistent communication. While time consuming, the pay off is significant as satisfied investors are the key to a strong and stable shareholder base and their interest translates directly to increased shareholder value. For further thoughts on IR and how to obtain optimal results, please contact your GA team.