As sell-side research arms downsize and demand for IROs with financial skills grows, more and more analysts are crossing the Street to IR. Recent moves include James Lindsay and Julien Onillon who went from the City to IR positions at Vodafone and Mittal Steel, respectively. Some of the best-known faces in IR also came from the sell side, including BP’s Fergus MacLeod and Johanna Keating of Sydney-based Stockland.
Often, sell-side analysts are recruited by companies they cover to take on the IR function. But what makes these sell-side analysts attractive – and often successful – IR candidates? And what is their learning curve when they move into IR?
The right skills
‘The most important and primary skill set companies are now looking for in IROs is the ability to read, disseminate and communicate a balance sheet,’ says Oskar Yasar, executive director at the VMA Group, a London-based research and recruitment agency. ‘Analysts fit this role for several reasons: they know what the City is thinking and expecting from companies, and more often than not they have an accounting or a financial analysis background.’
‘Coming from Wall Street, where you are talking to investors, traders and salespeople, is very good training for getting out in front of a company’s investors,’ observes Jennifer Klein, VP of IR for Autobytel, an internet automotive marketing company and a former equity analyst with Banc of America. ‘Being an analyst typically provides an IRO with a strong financial background that allows for an understanding of what motivates investors and analysts. This background also helps IROs determine from analysts’ questions whether a fund is looking to long or short your stock.’
Some former analysts say sell-side experience gives them an edge in IR. ‘[Coming into IR], I understood how the Street worked, what analysts were looking for, and how not to be hoodwinked by them,’ says Hill Davis, an analyst with Texas-based SunTrust. Davis moved from an analyst position at Thomas Weisel Partners into IR at Texas-based Brinker International and then returned to the sell side.
Former analysts are also well equipped to do peer analysis and answer complicated investor queries because they have often done due diligence on a company and its competitors. ‘Analysts are experts at analyzing companies’ financials and telling a story from the numbers,’ explains Jonathan Boersma, director of standards of practice at the CFA Centre for Financial Market Integrity. ‘That puts them in a strong position to answer tough questions as they know what the company’s strengths and weaknesses are.’
Former sell-side IROs recognize the value of having an IR person with sell-side experience. Rui Avelar, SVP of medical affairs and communications at Angiotech Pharmaceuticals, was an analyst with Haywood Securities before joining Angiotech as VP of IR. When promoted to his current position, he looked for someone with similar qualifications to fill his old shoes.
‘We needed someone who was fairly intimate with investors and could understand the sensitivity of the markets,’ he explains. ‘The sell side is a good place to find those qualifications, as analysts have to generate reports and interface with the Street.’
Seize the day
While many former analysts are asked by the management of companies they cover to head IR, Peregrine Riviere, formerly with Morgan Stanley, took the initiative and called up the finance director of the Carphone Warehouse to volunteer his services. He is now director of IR at the company.
Upon entering IR, Riviere identified room for improvement and immediately initiated changes. ‘We now give clear guidance yearly in April for what we expect various business lines to achieve in terms of top-line growth and margins, which gives us an excellent structure for explaining to the market where we have outperformed or underperformed throughout the year,’ he says. ‘Secondly, we formalized our financial calendar. Previously, when I was an analyst, Carphone used to give various trading updates, roughly quarterly, but always providing data on very short trading periods. I actually came in and said we had to stop doing that because if you give such short-term trading updates, the stock will continue to be volatile.’
Julien Onillon, director of IR at Amsterdam-based Mittal Steel and former head of global research for HSBC in Paris, also improved disclosure at his company when he took over IR there. ‘I increased disclosure according to what analysts need for building models and making estimates,’ he says. ‘We compiled an annual fact book, did a quarterly results earnings release, and arranged plant tours for analysts to understand better how we operate.’
The response from analysts was positive: within three months of Onillon’s arrival, Mittal went from no sell-side coverage to six analysts following the stock. ‘This was very basic, but I knew analysts’ language and the detailed information they require to do their jobs,’ Onillon says.
Inside information
An analyst-turned-IRO has insight into the inner workings of the market, which is warmly received by senior management. ‘Sometimes management does not understand why a stock will react positively or negatively when a company has not put out any news,’ Klein points out. ‘And sometimes it might not appreciate how timing is perceived. Even though it might seem like simple stuff, if you put out bad news on Friday afternoon the market is going to be really mad at you on Monday: investors will feel you are trying to hide something. These are the kind of discussions I’ve had with my management about timing and the securities market.’
Riviere, who participates in Carphone’s executive committee meetings, believes it’s vital for IROs to be able to explain the securities market to management and the board. ‘The most valuable thing an IR person can do for a company is to demystify the City,’ he maintains. ‘That means actually going out and communicating with confidence, and being able to tell your board that the market is likely to read something this way or that – so directors feel they have someone on their side who knows how the City is likely to react. Obviously, I am not right every time, but I am right far more often than if I hadn’t worked in the City for six years.’
When assessing potential acquisitions, senior management will often call on these former analysts’ valuation skills. This means management isn’t as reliant on the advice of investment banks, notes Onillon. ‘I am a very big source of information for my management because of my insight into the stock market, the vision I have of the steel industry and my ability to evaluate companies,’ he says.
Learning curve
Sell-side experience does not instantly make you a great IRO, however. There is a set of skills analysts have to acquire to perform proper IR, according to Smooch Reynolds, president and CEO of California-based recruiting agency TRRG. ‘Analysts have never done roadshows,’ she explains. ‘They have never done targeting to identify investors, they are not in selling mode in terms of what they do and they have probably never done an annual report. In the US, having analysts land a senior position is unheard of unless the CEO knows a specific analyst very well. For a senior IR role, you need at least twelve to 15 years of IR [experience] on top of the financial experience.’
Former analysts note the major difference in doing IR is new administrative tasks, such as managing communications with constituents like employees and retail audiences, which sell-side analysts have not typically dealt with in the past.
‘In IR you work with a lot of different groups within the company and they all have different needs and wants,’ says Davis. ‘You have to get information from all of them, but you also have to remember they have deadlines that are more pressing and directly related to their performance in their job.’
Analysts bring a different set of skills to the IR table, skills that appear to be in strong demand from management and the board. The fact that analysts are moving into IR is also a reflection of the role’s elevated status within companies. For her part, Klein was recommended for her IR position by one of the company’s investors.
‘If you had asked me five years ago whether I would go into IR, I would have said, No way,’ admits Klein. ‘But since Regulation FD and changes in the securities industry, IR as a function within companies has become much more strategic. Senior management is now aware of how important it is to have someone who understands regulations, finance and Wall Street, and who can communicate with investors while freeing up some of management’s time.’
