Whether notification comes from an open filing with the SEC, a private letter or an inbound call, the mere presence of an activist investor or fund in a company’s stock is enough to put even the most stalwart management team on edge. In recent years, the growth of specialty and hedge funds has led to a dramatic increase in shareholder activism, which has brought both problems and benefits to investors and managements.
One important point to keep in mind when dealing with activists is that despite their loud voices, activist shareholders’ opinions should not outweigh those of other shareholders. That said, as shareholders, activists’ opinions are important and can be very helpful if approached with an open mind, as most activists seek increases in a company’s share price just as management teams do.
However, interests often diverge with the time frames and methods each would like to see. Activists often seek to unlock existing value as rapidly as possible, often through reorganization and austerity, while management teams often take a longer-term view that focuses on investment and franchise expansion. Depending on the specific case, either approach could be the best path for shareholders as a whole.
When designing and maintaining an investor relations strategy, how important is your company website? Pretty important, it turns out. A Thomson Reuter’s 2012 survey showed that 84% of institutional investors use a company’s IR website as part of their research process. Importantly, 74% of respondents also indicated that the IR website has an impact on their perception of the company and its IR program.
First impressions are extremely important, and your website is often your company’s first chance to make an impression. Here are some key places investors go on your website, and some tips on how you can make their experience a valuable one (for them and for you):
- Make the site easy to navigate. If a website is not laid out logically and clearly, visitors will become frustrated and give up looking. Key information – such as presentations, press releases, SEC filings and other news – needs to be displayed prominently, allowing potential investors to get to it quickly. This doesn’t just apply to the investor relations section but the entire website. Don’t make it hard for investors to learn about your company and products.
- Make sure all info is up to date and accurate. Too many times, sites continue to display information that is wrong, or outdated. This can lead investors to assume that IR is not important to the company. Continue Reading
We have been fortunate, and sometimes unfortunate, to have observed hundreds of companies go through an initial public offering (IPO) process, and then begin trading as a public company. What is astounding is how frequently healthcare IPOs “blow up” within the first few quarters of their public life. This happens so much so that a small group of investors has made a career of buying these broken IPOs. Why? Because they know that a broken IPO does not necessarily make a broken company.
The challenge, of course, is that once a newly priced IPO blows up, and the stock drops to a point where it is deemed broken, there is an incredible amount of work, credibility re-building, energy and time required to gain back lost valuation and earn back Wall Street’s trust.
Why do companies blow up and when does permanent credibility damage occur? Here are the most common issues that we see:
Management teams often believe that marketing their company in Europe would offer a fun, worthwhile trip and could diversify their shareholder base among international investors. While it can be productive, marketing abroad can be a colossal waste of time and money, if not planned thoughtfully. Having coordinated hundreds of non-deal IR road shows in Europe, here are a few tips from the team at Westwicke Partners:
- Do leverage an existing trip to Europe to meet with investors. Our suggestion is to combine an existing trip for business purposes or a conference appearance with a few marketing meetings. The trip is long, so it makes sense to accomplish several goals while you’re already there.
- Do ask for help. Too many companies try to “set up” European meetings themselves or through their IR firms. The reality is Europe is a different animal and it’s impossible to know every key player in each market. We suggest using one of your analysts to set up the trip. Almost all investment banks have a dedicated European sales force that is much more qualified to produce a quality set of meetings. As a quick aside, don’t hire a third party to set up the trip. You will likely end up with a lackluster schedule.
- Do focus on quality vs. quantity. We believe that more isn’t necessarily better; better is better! Often, the European sales forces at these banks are so excited to get a management team in their territory that they want to extend the trip for several more days to see a number of cities. This is a bad idea for two reasons: First, the cost of travel to these secondary cities can be off the charts. Second, these meetings often have diminishing returns. Stick to the major cities and target the best accounts.
- Do insist that the salesperson attend the meetings. Salespeople play an important role in the success of these trips, as they can give valuable insight into each meeting. For example, before every meeting, make sure you get a summary about each person’s level of interest, investment style, peer ownership and any other relevant factors that can help with the discussion.
- Do maximize your time, i.e., logistics matter. As you think about the trip, recognize that many large cities are difficult to maneuver. London, for instance, is much like Manhattan. Meetings can be all over the place and, if not properly coordinated, getting to each location can leave you missing some meetings and late for others. Make sure the investment bank setting up the meetings in each city arranges a logical and efficient schedule (which is yet, another reason to ensure the salesperson attends).
An investor perception audit – a formal survey of buy-side investors and sell-side analysts, typically conducted by an independent third-party – has become part of the standard investor relations activities for many public companies. Done properly, a perception audit should highlight the good, the bad, and the ugly about a company’s IR efforts and its reputation on the Street. While many companies shy away from asking the tough questions, we would encourage companies to seek both positive and negative feedback, and to actively address any concerns that are raised.
In a 2007 survey of over 3,000 companies titled, Perception Studies: What are They Thinking?, the National Investor Relations Institute (NIRI) found that the majority of respondents surveyed had conducted perception audits. Of this subgroup, 92% said that they use perception audits to determine the extent to which their company’s strategy was understood and 78% noted that perception audits were useful when refining corporate messaging. Here are some other reasons why you should consider a perception audit:
- Measuring Effectiveness: Perception audits are great for measuring the effectiveness of IR practices. Your corporate strategy may be on target, but aspects of it could be getting lost in translation when you communicate with the Street. An audit can highlight ways to improve your corporate messaging and to market your business more successfully.
- Assessing Disclosure Levels: Understanding what investors appreciate in your disclosure and where you have the opportunity to be more transparent can be key. Importantly, determining how relevant your metrics are to the Street can be helpful as you craft your financial message.
- Management Perception: Audits can be a valuable resource for the board of directors to use as an objective analysis of management as well as a vehicle to collect feedback on the management team’s credibility and reputation on the Street.
- Audience Segmentation: A well-structured perception audit will allow you to identify differences in perspective, sentiment, or expectations between the buy- and sell-sides, between current shareholders and non-shareholders, and between the largest buyers and largest sellers in recent quarters.
- Investor Day Preparation: Perception audits can be used to help plan an investor day, providing you with an objective roadmap of what subjects to focus on, what information to present, and how to make the day as productive as possible.
- Building Credibility: The investment community values being asked for its opinion and views conducting a perception audit as an indication of the management team’s interest in improving.
As my hairs have gotten grayer in the last decade, I can’t help but to have noticed the major transformation that has altered how humans interact with one another. The digital revolution has permeated every facet of my life (as I’m sure it has yours): from how I get my news, to how I stay in touch with my family, to how I do business each day.
The “greatest generation” (i.e., those who grew up during the Great Depression) saw the widespread adoption of telephones and television sets. This generation spent the majority of its working years communicating through pen and paper, typewriters, and “snail mail.” The children of this generation—i.e., the “baby boomers”—grew up with much more access to information than their parents, but the information was not immediate, not “in your face,” and not coming at you from half a dozen devices at once. The way these two generations worked was very different, but the two groups’ outlooks were not necessarily in opposition. Like me, many of you reading this are probably part of Generation X or Generation Y. While we also have distinct world views and experiences compared to the generations who preceded us, we still are markedly different from the youngest members of today’s work force.
Recently, I moderated our first quarterly Wall Street Revealed webinar with special guests Grant Miller, Managing Director, Head of Equity Capital Markets, Cowen and Company, and Matthew Perry, Portfolio Manager, BVF Partners, L.P.
While we covered a host of topics related to the webinar’s theme – “A View of the Current Healthcare IPO Market” – one of the meatiest parts of the discussion (and a topic that drew many questions from webinar participants) was on the definition, value and purpose of “test-the-waters” meetings.
These meetings are made possible as an outcome of the JOBS (Jumpstart Our Business Startups) Act, which – according to the Securities and Exchange Commission – permits an emerging growth company to engage in oral or written communications with potential investors that are qualified institutional buyers or institutions that are accredited investors, either prior to or following the date of filing of a registration statement. In short, private companies are now able to meet with potential investors before filing to go public. As Matthew Perry emphasized during our webinar, “I love test-the-waters meetings. Every single CEO, board member and management team should use them to know what their company’s IPO is going to be like well before the IPO is booked and filed.”
Management teams and IR professionals tend to take stock rating downgrades personally. While a downgrade may sting on the day of, in the long run all stocks’ ratings are subject to fluctuations – both up and down. To get a better feel for how the buy-side reacts to ratings downgrades, we reached out to both buy-side analysts and portfolio managers to get some real-time feedback. The conclusion? In general, the buy-side really doesn’t care about the rating on a particular stock. The representatives we spoke to clearly are more interested in learning as much as possible about a company and are less interested in a stock’s label.
Following are ten direct quotes about this topic that speak to why analyst ratings really don’t matter:
- “I don’t care about analyst ratings. I do my own research and try not to let the sell-side influence me.”
- “I love analyst downgrades because it gives me an opportunity to buy the stock.”
- “Most of the time I don’t even know what their ratings are, I just talk to the analysts that know the company the best.”
- “I’ve done this for long enough to know that more than half of them are wrong on their ratings.”
- “Sometimes ratings are based on momentum and not fundamentals. I invest in fundamentals.” Continue Reading
Unless you’ve been stranded on a distant planet, you’ve noticed that equity markets have been hitting new highs lately, and that’s been accompanied by an increasingly robust capital markets environment, even including initial public offerings (IPOs). In fact, the current public healthcare IPO backlog stands at 14, with many more companies already confidentially initiating plans to pursue going public over the remainder of the year.
As recently as six months ago when we would meet with CFOs and CEOs of private companies (or their venture investors), they would have long lists of reasons why their company would never go public. The reasons included cost of capital, the hassle of being a public company, legal requirements, and compliance costs. All of these are particular burdens for smaller companies. In addition, if executives or investors were looking for an exit, they calculated better valuations if they sold to a strategic acquirer or private equity firm. An IPO was truly an option of last resort. Today, when we meet with these same constituents, we see a dramatic shift in their attitude towards going public.
Changing Tides for Healthcare Companies
So what has changed? The overall equity markets are much stronger, IPOs are getting done and trading up in the aftermarket and sentiment from the buy-side has become much more favorable. Some of this positive change has to be credited to the federal JOBS Act—a series of measures that allows private companies to become public in ways that are less burdensome and less costly.
In March 2013, a journalist for The RPM Report (subscription required) wrote that the U.S. Food and Drug Administration (FDA) had held a “late cycle” review meeting with a drug candidate sponsor. The meeting – an element of the 2012 Prescription Drug User Fee Act-V – introduced a new formalization of communication between the FDA and sponsors, and hailed a new investor relations dilemma for companies: Should “sponsors” disclose what is discussed in these late cycle meetings with the agency, or not?
Late cycle review meetings are a change from past FDA practice; previously the agency engaged in less formal, ongoing communications. Formality might be a good administrative move by the FDA. The agency will now more clearly state what page it’s on, rather than making the sponsor figure out the scenario via a stream of communications over several months.