Investment community meetings have become an increasingly critical determinant of any company’s success on Wall Street. But several trends have converged to make them both a harder row to hoe and a greater opportunity for those firms able to turn adversity into advantage. Uncertainty regarding Regulation FD, rising travel costs, new technologies, the sheer number of recently-listed companies trying to squeeze themselves through institutional doors, and a bear market are among the factors causing companies to rethink roadshow strategies.
Yet the basic premise of the roadshow has not changed – to get a company’s senior decision-makers directly in front of analysts and institutional portfolio managers, explaining their story face-to-face. In some ways, this is an even more important practice than ever before because of the huge increase in public companies clamoring for attention. ‘The background noise and clutter is enormous,’ says Adam Friedman of New York-based IR consultancy Adam Friedman Associates. ‘It is very difficult to set yourself apart – unless you can actually get face-to-face with someone.’
However, getting yourself in front of those analysts and investors is tougher than ever before. The reason, again, is the exponential increase in the number of companies looking to do the same. ‘Once, you could call a portfolio manager, give him a summary of the company’s attractiveness and you would get a meeting,’ recalls Friedman. ‘Now, portfolio managers and analysts are covering many more companies and don’t have as much time as they once did. That means you must make an exceptionally good IR case just to get a foot in the door.’
But even if a compelling investment case can be made, given the chilling state of the market and new SEC regulation, many IROs are wondering if now might just be the time to keep their CEOs locked in their corner offices. ‘Many companies are less than eager to do roadshows at the moment because firstly they are afraid of saying things they should not, and secondly they figure there is little they can say to help them until the market starts looking better,’ says Ken Donenfeld, president of DGI Investor Relations. ‘When you see that no matter what you say your stock price drops, you feel you are spitting into the wind.’
Indeed, in these trying times, almost anything a company says appears to be a sensitive piece of information and investors and analysts seem keen to find almost any excuse to add to their concerns about a company. Adds Donenfeld, ‘There is something to be said for ducking a little bit at the moment. But the bear market can’t last forever. For small companies especially, you have to try to give people positive signposts to look for – if not the bottom line, then elsewhere.’
‘In a down market, it is even more important to get out and talk to current and potential investors to ensure they understand your strategy and prospects,’ says Kathy Liebmann, director of Citigate Dewe Rogerson’s European IR group. ‘In these difficult markets, people want to be reassured.’
Moreover, as others run for cover, those companies that do make the effort to present themselves on a road less traveled can often reap extra rewards. ‘Too many companies don’t realize that even though we are in a tough market, communication is still a prerequisite for attracting new investors,’ notes Sheryl Sumner-Zen Ruffinen, managing director at European Investor Relations in Geneva, which helps introduce US companies to European investors. ‘That means many companies have canceled their roadshow plans. As a result, however, those companies that do come over get a great audience turnout.’
Of course, whether those investors who show up also run out to instantly buy stock is another question. But there is no doubt that getting a company’s name on their radar screen is a critical first step in the investment process.
The Reg FD effect
Besides concerns over a bear market, yet another roadblock often prevents getting those bums in the seats – Regulation FD, which ends the selective disclosure of material information.
At first, companies were reticent to speak to investors lest they transgress a rule whose gray areas had not yet been fully explored. While the plug wasn’t pulled on roadshows, many IR departments raised a cautionary note. Now, with the benefit of hindsight, things are going back to normal. However, managements are being careful to script their presentations more carefully to avoid stepping into the FD minefield.
To that end, consultants are being increasingly called on to drill managements on the finer points of FD as well as rehearsing clients more thoroughly than before – particularly on Q&A sessions. And many are going along for the ride during roadshows to ensure that management doesn’t step over the boundary. Importantly, everything that is scripted into a meeting must be compared to what has been put out in a press release. And that press release must be recent. ‘You might get into trouble referring to a two month-old press release, even if you merely reiterate what had been said,’ says Barry Morris, principal of Morris Capital Markets Communications.
But even the most well-scripted presentation is useless if no-one is there to hear it. And, it is the intensely scripted nature of the presentation that may keep investors and analysts away. ‘If you are talking to a discrete group of people, then what you tell them cannot be news,’ notes Morris. ‘If it is not news, then why would someone want to come and listen to something they already know?’
Indeed. The upshot of FD has been that companies are changing the content of presentations, focusing less on short-term results and more on the company’s value proposition, long-term prospects and the personal integrity and competence of senior management. ‘FD means that analysts and investors can ask less about specific numbers (‘Are earnings going to be in line with Street estimates?’) and more about larger strategic questions (‘What makes you different from competitors?’),’ says Morris.
For their part, many companies concerned about saying something they shouldn’t in one-on-ones are more comfortable attending group meetings where the presentations are even more scripted. ‘Paradoxically, more people tend to show up at group meetings simply because they aren’t getting the one-on-ones that they had in the past,’ says DGI’s Donenfeld. ‘At the same time, group meetings are also an effective use of fund manager and analyst time and can be an especially good way for companies to introduce themselves to new markets.’
Virtual roadshows
So, if you want to say something new, or inoculate yourself against FD, why not exponentially increase that listening group through a webcast? Besides, in an era of rising travel costs and tightening budgets, webcasting is a relatively cheap way of getting the investor relations message across and can save a significant amount of management time. Webcasting a roadshow also avoids some of the pitfalls of a traditional physical show in that weather, airplane connections and so on are not a factor.
‘Technology is doing to roadshows what it did to bike messengers,’ says Barry Morris. ‘Ultimately, roadshows will be done more virtually than not. Since a CEO’s time is valuable, one must ask whether they can afford to be out of the office for two solid weeks. At the same time, by the end of a two-week roadshow, your management team returns to the office mentally and physically exhausted.’ While most companies would be making an error not to consider adding virtual capabilities to their roadshow mix, most consultants agree that, in the end, investors will still want face-to-face contact to close a deal. Says Morris: ‘It just won’t cut it when a money manager’s clients ask whether he has met with company management and the manager responds, Yeah, I saw them on my computer screen. A face-to-face meeting is critical because non-verbal communication is so important. How many times have you walked out of a meeting thinking to yourself, That person was polite, but I don’t trust them.’
‘We had a concern that new technologies would lessen the need for our services,’ adds Peter Clayton, business development director at London-based live event producer Imagination. ‘But while webcasts are an important addition to the IR arsenal, investors are still saying they want to regularly shake hands with management and meet them face-to-face. In fact, our clients are asking us to handle roadshows on increasingly larger scales.’
Since communication is a two-way street, there is also the issue of feedback. ‘If you want to be certain that someone will listen to you, you have to go out and visit them,’ says Kevin Feeny, director of investor relations at London-based College Hill Associates. ‘If they are just on the webcasting list, who knows? Besides, there is always something interesting that will evolve from face-to-face discussions.’
The broker/underwriter’s position on virtual roadshows covers a wide spectrum of opinion. ‘Many investment bankers would prefer the old-fashioned way,’ says Andrew Edson of Andrew Edson & Associates. ‘Whether they subcontract it or do it themselves, they often take a fee.’ Increasingly, however, whether roadshows are virtual or not, some brokers appear increasingly willing to work with third-party IR consultants on the logistics, investor targeting and content of roadshow presentations.
‘Brokers were once much more insecure about anybody other than themselves speaking with institutions,’ says Cynthia Alers, partner and head of the IR practice at London-based Financial Dynamics. ‘But they are coming to realize that consultants add value in ways that brokers do not. As a consultant, we charge more for a roadshow than would a broker. However, many of our clients say they prefer using consultants because they get more impartial service.’
That impartiality often involves the introduction of companies to other sell-side firms and institutions that are not contained in the broker/underwriter’s list of contacts. In fact, another trend in roadshows is the increasing reliance on refined targeting techniques to match the company’s message with the right investors.
‘Roadshows can take up a considerable amount of senior management’s valuable time so it is vital that they be carefully planned to ensure that that time is utilized as well as possible,’ says College Hill’s Feeny. ‘Among other things, that means targeting the right investors. One key trend is the need for really careful advance preparation in order to ensure you visit the right sorts of institutions.’
The benefits of advance preparation also apply to travel logistics and a cottage industry of specialists has sprung up. ‘You can have the best institutions lined up and have the most compelling argument, but if you don’t show up to speak then you’ve blown it,’ says Financial Dynamic’s Alers.
‘Management really doesn’t want to have to think about anything else but presenting,’ adds Imagination’s Clayton, who suggests keeping the traveling management team and advisors down to the smallest size necessary. ‘The more people there are traveling, the more chance there is for something to go wrong,’ says Clayton.
‘Anything that can go wrong will go wrong,’ notes Ken Donenfeld, ‘European plugs won’t fit into US jacks, or hotels will be booked solid, or computer discs will fail. I’ve crawled under tables to find where cords became unconnected just as a presentation was about to begin. Something can always happen at a meeting so you need someone to worry about every detail.’
Making a spectacle
One result of Regulation FD has been a boost in the quality of corporate presentations. With the playing field having been leveled, companies are searching for ways to rise above it. One thing they can do is to provide more dynamic, entertaining and memorable presentations that highlight a firm’s value proposition.
‘Investors and analysts are no longer keen to sit through a dry PowerPoint presentation of the financials highlighted by a few key phrases and graphs,’ notes Elin Raymond, president of The Sage Group Inc. ‘More and more of our clients want productions that can rivet people’s attention and get their messages implanted more readily. One way of doing that is to embed Flash animation and video clips within their PowerPoint presentations.’
‘Extremely complex ideas can be effectively communicated by turning them into animations,’ says Andrew Corn, the president of Admaster Communications in New York. ‘If, for example, you want to describe how a drug enters the bloodstream, you could spend 45 minutes talking about it, or 30 seconds showing it on video. That both saves time and adds a bit of impact to your presentation.’
With all this new razzle-dazzle becoming standard procedure in IR presentations, it is not surprising to see the chief marketing officer working more closely in tandem with the IR team on presentations to the financial community. ‘The product marketing people are seeing that marketing to the Street through investor relations is an important part of what they should be focusing on,’ says Admaster’s Corn. ‘While the investor relations person knows what’s important to investors, the marketing people can help portray that in the best light to really make a firm shine.’
At the heart of a company’s ‘value proposition’ lies the competence of management. Increasingly, consultants are being used to help senior management refine their persuasive skills. ‘Just because someone is a CEO doesn’t mean they come automatically equipped to be effective communicators,’ comments Joseph Jennings, vice president of The Sage Group Inc. ‘That is often particularly true for senior management at companies just about to go public.’
Jennings says rehearsals are growing in importance as part of the roadshow process. ‘Winging it just doesn’t fly anymore,’ says Jennings. ‘Management must know how to respond to the tough questions most likely to be asked during Q&A sessions. That way, even though your vulnerabilities may have been exposed, you can go into the session with more confidence having had an opportunity to consider the questions beforehand.’
But what do you do if a question comes up that hasn’t been scripted?Jennings recommends focusing on the long term. ‘Concentrating on long-term prospects will instinctively lead you to more effective answers,’ says Jennings. ‘You come across as more of a visionary and leader if you focus on the long term and global solutions. That approach is especially important in today’s market where you want people to inspire investors with your future prospects rather than what you did last quarter.’ ‘Because the packaging of management is more important, media training is a big trend,’ agrees Admaster’s Corn. ‘When the market was good, the drill was to just get your story up, then someone would write some research and you would get buyers for your stock. Now, investors are looking for strong management. But strength comes across as a function of how commanding of a room an individual is. Presence is vitally important.’
Clearly, when it comes to the oral presentation of an investment case, even a CEO with natural presence can get bogged down with a script that has been sanitized by lawyers. That is why communications consultants are increasingly used to turning turgid, jargon-laden written prose into effective, listener-friendly oral communication. ‘Conversation is the most effective form of communication,’ says Nial Hall of London-based Westbury Consulting. ‘That is because it not only gets a message across but it also gives listeners a greater feel for the professional competence, integrity and personality of the speaker.’
Also vital to an effective roadshow presentation is to get the key points of your investment case right up front. ‘Your banker or lawyer will tend to craft a perfectly worded prospectus which has the conclusion hidden somewhere near the back,’ comments Hall. ‘In a spoken presentation, any audience has a limited attention span and ability to absorb information.’
All in all, getting its show on the Street has become an increasingly complex and important part of any company’s overall IR program.
With the number of investment opportunities multiplying each day, the clear and compelling articulation of a company’s investment appeal is more important than ever before. On with the show.
Talking points
Start strong with a compelling message that grabs the audience’s attention. Limit the total amount of information. Stay on message and back up your statements with examples. The Sage Group Inc’s Elin Raymond councils that every company should have three and no more than five key messages that they want to implant with their presentation. ‘People just won’t remember any more than that,’ she says.
Shape your message into a relaxed, conversational form. Avoid jargon. Perhaps most importantly, don’t be frightened of your own silence. ‘People cannot listen and think at the same time,’ says Hall of Westbury. ‘They need time to reflect on what you are saying.’
In an attempt to gain presence, senior management, especially if coming from a marketing background, may often make dramatic pronouncements that they later regret. ‘Saying I’m sure of such-and-such is a great way to get nailed by investors,’ says Admaster’s Corn. ‘Say instead, I’m confident of such-and-such. You may still get nailed. But the nuance is very important in terms of credibility.’
