Even in the best of times, the job of investor relations professionals is a comparatively thankless one. It’s not as if they get extra recognition when the company delivers betterthan- expected results. In those cases, all credit goes to the chief executive, who holds forth on his or her brilliance for the duration of the quarterly conference call.
And when – heaven forbid – results surprise on the downside, look out. IROs must cope with a stream of calls from angry investors, outraged portfolio managers, and suddenly interested analysts.
In recent months, investor relations professionals have had to cope with an increasingly common situation that similarly offers little upside: buyouts. This rising trend – led by outside investors, management, or a combination of the two – has been roiling the markets. Every Monday the Wall Street Journal brings news of deals large and larger still: HCA, Equity Office Properties, TXU.
As the trend escalates, and as the targets grow larger, skepticism among public investors has risen, especially when insiders lead the charge. The implication of any buyout is that the parties organizing the deal believe the company is undervalued not only at the current market price, but also at the premium price they’re willing to pay to gain full control.
Buyout artists, after all, have proven themselves to be among the world’s most competent capitalists. They won’t consider paying $50 a share for a company unless they firmly believe they can sell it for $100 a share a few years down the road.
The situation is aggravated when existing management leads the buyout. After all, public shareholders have been paying the bosses to maximize shareholder value, but the very offer of a buyout implies that the hired help hasn’t come anywhere close to doing so.
This wedges the investor relations team uncomfortably between a rock (cynical, frequently angry investors) and a hard place (the bosses, who expect the team to help sell any deal they propose).
That’s only a small part of the discomfort created by buyouts, however. The theory of such deals is that managers can replace a diffuse and diverse group of thousands of public shareholders with a very small group of private shareholders. Once the deal is completed, communications between the CEO and the main equity shareholders can take place around a small conference table, or on a private phone call.
A company controlled by the Blackstone Group or the Carlyle Group, for example, doesn’t need a large team of investor relations executives to set up and manage quarterly conference calls, create presentations for brokerage house conferences, oversee the production of 10Qs, or nurture relationships with Fidelity mutual fund managers.
In other words, corporate buyouts frequently force investor relations professionals to explain, sell, defend and rationalize deals that, ultimately, could lead to their own redundancy.
