Many great claims have been made for the introduction of the euro. By removing barriers to trade, and consequently acting as a form of deregulation, the level of cross-border transactions was predicted to increase sharply. As Europe became one large domestic marketplace, eliminating hurdles such as exchange rate risk, companies – small and mid-caps as well as the larger players – would be able to seek investors all over the Continent rather than sticking to their own patch as before. Furthermore, because of the removal of restrictions on the amount of non-domestic investment they make and, more significantly, because of the removal of currency risk, institutional investors would be able to expand their portfolios.
It is probably still too early to assess the extent to which any of these predictions have come true, although cross-border transactions among – and non-domestic investment in – European companies has certainly increased. But what about US companies looking to access funds in the eurozone? The euro’s introduction seems to have coincided with an increase in European investment in US firms. According to a survey of 680 European institutions conducted by Brussels-based Kuhn Partners in January 2000 to determine the level of ownership of 50 leading US corporations, 76 percent of the companies saw an increase in their European shareholder base during the last six months of 1999. Comments Kuhn Partners’ Adrian Rusling, ‘In the long term, one of the impacts of the euro has been a move from country to sector analysis for institutional investors. This has more of an effect on companies in Europe than in the US but there is definitely a spill-over effect into international investment.’
Felix Lanters, vice president at ABN Amro Asset Management, agrees. He says corporate life everywhere is becoming more international. ‘There is more global competition generally. Doubtless, the introduction of the euro has made some contribution to this but it’s more a matter of the reduction of trade barriers, a trend that has been going on for decades.’
Christian Weyand, who heads up Gavin Anderson & Company’s financial communications practice in Frankfurt, stresses that US companies have not become more interesting or visible because of the introduction of the euro. Indeed, Weyand suggests that by removing barriers to trade within the Continent, the euro may have created more competition for US companies, making access to European capital harder than before. He explains: ‘The euro has provided more visibility for European companies. A Spanish company, say, which now reports in euros rather than pesos will get more exposure than before. US companies are still reporting in dollars so you might have a situation where an institution which before would have invested in a US company will now choose to invest in a European one.’
Show me the money
Rusling comments that US companies are primarily interested in going where the money is: ‘It doesn’t make any difference if institutions are in the eurozone or not.’ Mary Ellen Clifford, assistant treasurer for Intel Corp, agrees. ‘For me, the introduction of the euro has been a non-event.’ Clifford has headed up Intel’s investor relations program in Europe since 1995. ‘We’ve been coming to Europe for the last ten years and have had a dedicated IR person [herself] focusing on the buy side for the last five.’ Clifford comments that in her time at Intel she has seen an increasing interest and awareness in the company but she can’t relate that to the euro. ‘I’m talking to people who manage dollar portfolios so we don’t get into currency issues at all.’
Gwen Rosenberg, who heads up corporate communications at Alliance Pharmaceutical Corp, another California-based company with roughly 15 percent of its investment base in Europe, agrees. ‘We’ve been coming over to Europe for a long time, way before the euro. Maybe if you are looking for start-up capital it would affect you but we’re coming over for secondary offerings.’
Sheryl Sumner, who works for European Investor Relations Ltd, a Zurich-based IR firm which has brought roughly 40 companies over from the US to Europe in the past year, puts the increasing attraction of the Continent down to the nature of the European investment community. ‘US companies, particularly the biotech and high-tech small and mid caps, are getting more and more fed up with the short-term views of US investors. They’ve had a rough time with the incredible volatility over there and are looking for longer-term investors.’
Sumner also points to macro-economic shifts in Europe both in terms of the Continent-wide change in demographics, producing an aging workforce which has a greater need for pension fund investment than ever before; and an increasing trend among continental European investors away from their traditional emphasis on bonds toward more investment in equities. ‘The shift has come as a result of a growing recognition that in the long term, equities produce better returns,’ comments Sumner. For US companies this means that continental Europe still represents a relatively untapped source of capital.
Dorothee van Vrendenburch, founder of Amsterdam-based First Financial Communications, stresses that you can’t lump the whole of Europe together. ‘These sorts of changes in terms of a move from fixed-income to equity investment and from restrictions on foreign investment to free investment, happened in the Netherlands about ten years ago but are only now occurring in southern Europe,’ she says.
Stefania Bassi of Barabino & Partners in Milan confirms the huge potential awaiting US companies in Italy. ‘There are vast amounts of savings here, some practically untouched,’ she says. Bassi adds, however, that Italian investors’ knowledge of US companies is still sketchy. ‘Historically, Italian funds never invested directly in US companies because they really didn’t have sufficient knowledge. They would get a JP Morgan or Merrill Lynch to do it for them. This is slowly changing because more companies are coming over and are getting more exposure but it’s a slow process.’
Tech-savvy Europeans
Adrian Rusling comments that knowledge of US companies varies from institution to institution as well as from market to market. Whereas some analysts and fund managers cover the whole of the US market, others are very specialized. According to Rusling, the type of companies coming from the US has changed in recent years. Historically, only the very large, S&P 100 ‘old economy’ companies were active. ‘Over the last five to ten years, because of the growth of the IPO market, companies are coming from across the whole spectrum.’
Much of Kuhn Partners’ work now is dedicated to technology and media stocks. European Investor Relations too has developed a specialty in small to medium-sized companies. Rusling comments, ‘If it’s a small-cap technology company, you’ll find some surprisingly well informed fund managers in Europe.’ Intel is hardly a small cap, but Mary Ellen Clifford confirms that her experience of the European investment community has been that they are very ‘tech savvy’.
For Alliance Pharmaceutical Corp, which has three late stage products but nothing on the market yet, one would expect a more difficult educational task at hand. But, says Gwen Rosenberg, because the company has been conducting clinical trials in eight European countries, there has been a large amount of exposure to its products. ‘We’ve had interest from a broad spectrum of people with a really specialized knowledge of our business rather than just a familiarity with the broad pharmaceutical industry. That makes the education process much easier.’
So, if Europe has so much to offer, should all US companies be paying a visit? Adrian Rusling says not. ‘Although there’s not necessarily a threshold, I would say for companies with a market cap of about $1 bn or under that they should seriously think whether it’s worth coming over,’ he explains. ‘There’s got to be a definite peg – maybe they’re in a sector that’s really hot or there’s a significant demand for their products in a specific country.’
European Investor Relations’ Sheryl Sumner agrees. She says that the location of a meeting is often based on a company’s commercial aspirations. ‘If a company wants to expand in Germany, it might be worth approaching German investors.’ Rusling puts companies into two different categories: ‘If you’re a large cap, you need to think about doing more than just the UK; if you’re a small or mid cap you should have very well thought out business reasons for doing more than the UK.’
Intel definitely fits in the former category. ‘There are specific countries where investors hold more of our shares – the UK, Switzerland, Germany, the Netherlands and Sweden – but I don’t limit my trips to these places,’ comments Clifford. ‘I try to visit all the financial centers in Europe as often as I can,’ she adds.
Clifford usually goes to Europe two to three times a quarter, bringing senior management over at least once a year. Alliance’s Rosenberg also visits regularly, maybe two or three times a year between herself and the CEO, usually for a week or two. They spread themselves across the Continent with meetings in Italy, Germany, Sweden and the Netherlands as well as the UK and Switzerland. Sometimes Rosenberg combines trips with other business meetings. ‘I was at a scientific conference in Berlin in November so went to a number of other countries at the same time.’
Typically, Rusling says, US companies visit once a year for a full week. Most spend their three core days in the UK and Switzerland – two days in the UK and one in Switzerland (Zurich and Geneva are just about do-able in one day). Then for the two remaining days, it varies. Second division countries include France, Germany, perhaps the Netherlands, Sweden, Italy or Ireland.
Research project
‘It’s crucial with these countries to get your research right,’ notes Rusling. How difficult the research task is obviously depends on which market you’re hoping to access. Italy, for example, can still be quite inaccessible to foreigners. Says Barabino’s Bassi: ‘The Italian market is unique. It’s difficult for outsiders to know which are the main funds, the significant players in the market. It’s also a matter of understanding how to approach them right. Italian investors, for example, still like the traditional approach. New technology such as video and teleconferencing is great but it’s important for Italians to have face-to-face contact.’
Gavin Anderson’s Christian Weyand comments that investor relations in Germany is also still at a semi-professional level compared to the US. ‘There isn’t the same kind of investor targeting available as in the States. We look at which are the largest institutions, who is the right contact there and then call them up and sell the story.’
Gavin Anderson, and other agencies like it, do also conduct regular research into investor perceptions in Europe, according to Weyand. ‘We ask them how they perceive a company’s strategy, prospects and perspective and then help companies target their efforts and help them reconsider their communications strategy.’
Weyand suggests a three-part positioning exercise for any company approaching a European market. ‘First identify target institutions – if you’re not part of an index, for instance, you obviously won’t be looking for index investors. Once you’ve identified the right institutions, contact them and pitch your story: This is a really interesting company, would you like to meet them? Then arrange a one-on-one or maybe a group meeting if they’ve never seen the company before.’
Alliance’s Gwen Rosenberg, who uses IR agency European Investor Relations to help focus her company’s European IR efforts, says that investor research is a two-way process. ‘We provide the agency with names of institutions we would like to get management in front of and they suggest people they think we should meet. This kind of pre-selection is essential to get us seen by the investors who are really interested in us,’ she explains.
Adrian Rusling suggests a combination of group and one-on-one meetings. ‘Our house view is to maximize the one-on-one meetings with key large institutions that are existing or potential buyers. We aim to pull in everyone else to the group meetings. They may not be poorer institutions but will probably have less familiarity with the company,’ he says. Rosenberg agrees that group meetings can be a good forum for introducing the company to people who don’t know it at all. ‘What we do depends on the market; sometimes it also depends on the individuals. Some people prefer asking questions at one-on-ones rather than at large group meetings,’ she comments.
Rusling says that’s also a question of culture. ‘We’ve found, in the main, French and German investors much less likely to want one-on-ones than, say, UK investors, unless they have a very good handle on the company’s story. They’re also much less likely to ask questions whereas UK investors just steam on in there.’ This may also be partly due to a language barrier. Comments Rusling: ‘Companies often forget that they’re talking to people in a language other than their mother tongue. It’s important not to use too much jargon.’
Themed approach
Sheryl Sumner’s firm also runs theme meetings. These involve bringing together three to five companies from the same sector to explain their stories to investment managers. ‘They usually last about three to five hours so for the investors it’s a really good use of their time.’
According to Sumner, they also tend to get a lot of press coverage. ‘It’s important to increase the noise level about a company, particularly if they are new to a market.’ Rusling says that whether or not the press is invited depends on whether there is a particular story to tell or whether a meeting is just a strategy briefing. It also depends on which member of management has come over. The press is less likely to be interested in what the investor relations officer has to say than the CEO or CFO. Investors also tend to prefer to speak with senior management, however, because of the high quality of many US companies’ IR representatives, they’re often more than happy to just meet with the IRO. Comments Intel’s Clifford, ‘I get senior management, whether it’s the CEO or CFO, to come over as often as I can but realistically they just haven’t got the time to come every time I do.’
In terms of getting your message across to investors in Europe, Rusling says it’s much easier than in the US. ‘Whereas in the States when you visit a certain city you need to decide what type of investor you’re gearing yourself toward, in continental Europe most investors are seeking growth at a reasonable price, at the more value end of the spectrum.’
However, although continental European investors’ long-term orientation may offer a welcome relief to companies used to a volatile, aggressive and sometimes short-term home market, times are changing. According to Mary Ellen Clifford, ‘Increasingly portfolio managers in Europe are feeling more pressure to produce competitive results and are becoming even more focused on performance.’
