Investor targeting is a critical function for all companies looking to add new buyers and generate a broad and stable shareholder base. But management’s time and regulatory constraints get in the way. That’s why it’s crucial that you have an efficient and effective investor targeting strategy.
Having spent the better part of my career as an investor, and being the one targeted, I have been fascinated to learn the tricks of the trade to successfully target investors. Below I discuss a few strategies that will help get your company in front of the right investors.
It’s More Than Just Investment Style
For an institutional investor to buy a stock, the profile of the stock must fit the investor’s style, which defines the universe of stocks a portfolio manager can invest in. For example, an investor may define its style by company size, sector, geographic exposure (U.S. vs. emerging markets, vs. world), or particular characteristics, such as growth, momentum, or value.
But high-impact investor targeting requires a more in-depth look at an investor’s style plus its approach to investing.
Specifically, while investment style establishes a range of investments a portfolio manager will look at, he or she will then apply a complex set of factors and metrics to whittle down the universe of stocks into a smaller group to research and own. Understanding what these metrics are — and more importantly, how a stock’s fundamentals fit within these categories — is what will yield an ideal list of investors to target.
As an analyst, I remember pitching a high-growth pharmaceutical stock to a growth-oriented portfolio manager whose fund I thought would be a great fit. Moments after the pitch, the investor commented that he liked the idea but his fund could only invest in stocks with earnings and positive cash flow. So while the overall investment style was a fit, the specific metrics that helped define the manager’s style didn’t fit and it was a wasted opportunity.
Targeting by Comparable Company Ownership Analysis
Generally, an investor who has taken the time to invest within a certain sector or industry has researched the other companies within that same area. As a result, looking at shareholder overlap within comparable companies is another great investor targeting strategy. However, within healthcare, where there are multiple ways to slice and dice a company’s peer group, a simplistic approach may not be the most productive investor targeting strategy.
What should you do? Take a hard look at the peer group, get creative and really analyze who a company’s ideal peer group actually is. For example, a biotech company’s peer group would certainly include other biotech and healthcare companies, and it makes sense to target biotech investors. But I suggest a deeper dive — establishing peers by your targeted therapeutic areas, for example, or by the mechanism of action of its lead product, or by who the payer or reimbursement source will be.
Cross-referencing the shareholders from one or all of these highly specific peer groups may not give you a list of 100 potential investors to visit, but it will likely give you a very relevant and targeted list of interested investors who are already familiar with your industry. So instead spending valuable meeting time educating investors about your products, pipeline, industry, and key trends, you have a wonderful opportunity to maximize your time with a great interactive discussion about your company with investors that you know have a vested interest in the area.
Studying Money Flows
Willie Sutton allegedly said that he robbed banks because that’s where the money was. I suggest you take Willie Sutton’s advice and go where the money is!
Target investors who happen to be putting money to work in the area where your company is a player. This admittedly isn’t easy. One way is to track quarterly money flow data. With enough longitudinal data, charting an investor’s ownership trends can be revealing. We also suggest looking at the size of a position within a portfolio or fund as a percentage of assets under management invested in healthcare (or another sector). By cross-referencing positive money flow plus analyzing position size, the quarterly ownership data can provide a very specific level of investor targeting opportunities.
Mix Up Your Conferences
Attending conferences is a big part of any company’s investor targeting strategy. After all, it is a very efficient way for a company to see 10 to 20 accounts within a day or two. We strongly recommend it, and we suggest that our clients build an IR calendar where they are attending six to eight of these conferences each year. These conferences are a way to strengthen existing sell-side analyst and banking relationships as well as a way to create new relationships.
But if you are a healthcare company, and all you do is attend sell-side healthcare conferences, you are probably running into the same investors time and time again. I recall attending these conferences and always looking for the one or two companies that were “new.” Over exposure is something that we like to avoid and inevitably attending the same type of conference with the same investors can do this.
So we suggest targeting at least one to three non-healthcare conferences each year. For example, target growth conferences or special situation conferences. By mixing it up and attending different thematic conferences, you have the opportunity to be that “new” must-see company that potentially puts you in front of a whole new group of investors who target specific themes or attributes rather than specific sectors.
Let the Investor Come to You
A lot of companies assume that IR targeting means countless days flying around the country doing one conference after another or setting up non-deal road shows with hundreds of investors. While this certainly can be true, especially if you are one of the many new IPOs trying to build up exposure, it can be done in moderation.
And there are other highly effective ways to target investors without leaving your office. One way is to host a one-day corporate site visit with interested investors. These events don’t require a Herculean effort on your part, and the payoff can be good because you’re getting a small group of investors who are taking the time to do the work and are real potential buyers of your stock.
Time is always in short supply. Making the most of it with a highly refined investor targeting strategy is a must for all companies whether they are new batch of recent IPOs to the seasoned “built to last” mega cap companies. For a conversation on other investor-targeting techniques, feel free to reach out.