TOP TALK
Posted By Kathy Wilson on February 19, 2016
It’s hard to overstate the long-term value of building and strengthening relationships with investors via face-to-face meetings. That’s a major reason why so many publicly traded companies participate in Non-Deal Roadshows (NDR). An NDR is a series of in-person meetings with investors that don’t feature a public or secondary offering or selling of debt — no securities are being offered. According to a 2015 survey from the National Investor Relations Institute (NIRI), 93% of respondent companies conducted an NDR between 2013 and 2014. Most also expressed plans to increase that number in 2015.
But in our current volatile market environment, where the C-suite is focused on executing flawlessly against strategy to ensure optimal performance, some may struggle with whether they should use valuable management time out of the office to meet with investors.
I recently spoke with Mary T. Conway, a senior IR and strategic corporate communications consultant at Conway Communications, regarding how she counsels her clients about weighing the pros and cons of conducting an NDR.
Q: First, why should companies participate in NDRs?
It’s important to ensure investors have a full understanding of a company, including its existing business and vision for the future. While investors can glean much information from press releases, SEC filings, and conference presentations and other public information, there’s a qualitative element to understanding a company’s story that goes beyond what’s on the page, keeping of course within the constraints of Reg. FD, and not sharing material, non-public information.
If an investor wants to hold a large position in your stock, they’ll want to understand on a deeper level about your business environment, including market changes, the competitive landscape, your three-to-five year outlook, your international opportunities, and your product innovation plans, for example. Investors want an opportunity to do a ‘deep dive’ in your technology and product roadmaps. And these conversations often take place better in an NDR situation.
Q: If you were to provide a checklist of what a company should consider when evaluating an NDR, what would it include?
My first question would be how well a company knows its top 25 actively managed shareholders. What percentage of your stock do they hold? Do you know why they’re in your stock, and what their cost basis is? Do you know what could make them sell your shares? Which parts of your business do they find most intriguing and which are less interesting to them?
If you can’t answer these questions with confidence, you need to know your investors better. Strengthening your investor relationships is one of the most valuable things you can accomplish on the road. In-person meetings allow you to gain insights into what your investors see in you, and how they evaluate your organization versus peer companies in which they also might have holdings. Many investors do substantial market research themselves, and learning that intelligence can also be quite helpful.
Q: Makes sense – what else would you counsel?
The second question I’d ask is, who are other investors that might have similar outlooks to your current investors and *should* know you better?
The best way to introduce your company and build important new relationships is by meeting these investors in-person. Be sure your expectations are correctly set, since it’s likely new investors will want to ‘kick the tires’ several times before they decide to invest – it’s not usually a once-and-done scenario. Be prepared to demonstrate accessibility, show that your management team is thoughtful and strategic, that your near- and long-term plans are designed to take advantage of your competitive strengths, and how you’ll parlay all of these assets into long-term financial performance.
An NDR also rewards your covering analysts with more management face time, since in most cases you’ll be accompanied by a sell-side analyst in meetings (note: some investors bar analysts from joining company meetings). That enables these analysts to more accurately present your company to investors.
Q: Any other ideas?
Sometimes companies can combine their roadshows not only with buy-side investors, but also with members of the fund’s corporate governance team, since they’re the ones who vote on proxy resolutions. It’s especially helpful to get management in front of these contacts at large holders so the governance team can better understand your business and any elements of your capital, board or compensation structures that may fall outside of their guidelines. Keep in mind these teams are evaluating proxies for thousands of public companies each year and accordingly, plan to meet with them outside of the heaviest part of the proxy season, which generally runs from January through May.
Another important reason to commit to an NDR is that it’s incredibly beneficial for management teams to hear directly from investors about issues and concerns – both the good and the bad. Sometimes that feedback is filtered through the investor relations team and doesn’t have the same impact as hearing it directly from investors. NDR meetings tend to be candid. Were investors negative on certain aspects of a business strategy or concerned about parts of a company’s financials? What are their ideas on how the company can optimize its performance? Understanding this direct feedback also enables a management team to accurately report back to board members and can sometimes affect their strategic discussions.
Q: Where do most companies spend their time on the road?
New York and Boston are the top destinations in the U.S., but it depends on who holds (or could hold) your shares. Chicago, Milwaukee and Minneapolis are excellent targets in the Midwest, and Baltimore and the greater Philadelphia markets are also important in the Mid-Atlantic, as they’re home to large funds like Vanguard and Blackrock. The West Coast, from San Diego up to Seattle, is yet another popular focus. For larger companies, going to European markets is also critical, but in doing so, recognize that it becomes an annual commitment: those investors may not see you at U.S. conferences and value the in-person management time they gain when you visit them.
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