As the elite of Europe’s IR community dusted off tuxedos and donned sparkly evening gowns, preparing to descend on London’s Park Lane for an evening at the IR Magazine Awards – Europe 2014, a select 70-odd IR professionals spent the day discussing everything from debt IR to the latest corporate access issues.
This year’s IR Magazine Think Tank – Euro Leaders 2014 returned to the Bloomberg building, and boasted panelists including Paul Baildham, head of equity services at Fidelity Worldwide Investment, for the corporate access discussion; Hans Söhngen, head of IR at KPN, on the ‘Activism: the new normal’ panel; and Binit Sanghvi, vice president of IR at ABB, sharing his thoughts on how to bridge the gap between equity and fixed income investors.
The event’s Chatham House rule remained in place – as always – to encourage open, honest discussion, and much of the format remained the same, with each panel discussion followed by table debates and finally some comments shared with the whole room. One change, however, saw some delegate name badges color-coded to indicate a nomination for that evening’s awards (yellow) or a position in the Euro Top 100 (blue) or in the top 25 (red) of the Euro Top 100 rankings.
Digging into debt and equity
The discussions kicked off with Neil Stewart, moderator of the think tank and IR Magazine’s editorial and research director, leading a four-strong panel through a landscape of equity and fixed income investment that covered debt roadshows, which investors are attracted to convertible bonds and the benefit of maintaining a regular dialogue with debt investors, before each table took the talk into its own hands.
‘Our treasury department takes care of debt IR,’ commented one IR professional. ‘Of course we co-ordinate about the key issues but we think the focus for the treasury group is to meet those investors interested in debt.’
‘Our experience is that [debt investors] ask different questions,’ added another. ‘They can spend a whole morning talking about the capital structure, capital allocation and net debt to EBITDA while for IR, for us, it’s more about the business itself.’ Sometimes, co-ordination can be lacking between the two IR types, commented yet another head of IR: ‘This can be a big challenge.’
As Stewart moved around the room, he picked out select comments to be shared: ‘Going on roadshows I’ve probably never seen a fixed income investor so far,’ said one, while another explained how a standard slide, explaining the company’s capital allocation priorities, is now included in presentations to both debt and equity investors.
Targeting debt investors can also be an issue. ‘Most of us on the equity side have service providers that can provide us with a snapshot of who the current shareholders are. On the bond side, [however], it’s extremely difficult to figure it out,’ explained one IRO.
‘We don’t issue bonds on a regular basis so when we go on roadshows, which we do once a year, we’re completely dependent on the broker telling us who it thinks would be interested because we simply don’t have the day-to-day contact we do with the equity investors.’
An active approach to activism
Even as delegates headed out for a coffee break, some moved the discussion onto shareholder activism in anticipation of the next hot topic, with one IRO noting that while her firm had seen a couple of activists on the register, they weren’t actually behaving in an activist manner. Returning to the Bloomberg atrium, the panelists discussed how activism had become normalized, how to be best prepared for activists and how companies decide when to compromise – and what concessions to make.
The ‘tremendous amount of homework’ now done by activists and the support they often receive from mainstream investors was also discussed, as was the bad press that can come out of a lost proxy fight. But points alluding to the benefits of activist interest were also made: ‘It’s great to have people making slides for you – instead of you making slides for them – that’s one way to think of it,’ said one panelist. ‘I think that is the key: they can offer you an idea.’
As the discussion again moved from the panelists to the room, one delegate explained her firm’s interesting approach to keeping abreast of investor sentiment after panelists recommended making sure you know your register well. ‘Once a year we invite a handful or maybe a dozen investors over to have dinner with the full executive board,’ she said.
‘Usually the investors ask questions of the management, but the format is such that this time, management can ask questions of the investors. It brings up some very interesting points.’
But even when you think you know your investors, activists can surprise the company, said another IRO with activist experience. ‘They can just appear – and I don’t think it has anything to do with share price,’ he explained. ‘The key thing I would refer back to is being prepared, knowing what an [activist’s] attack themes might be.’ He also noted that the first sign of activist interest can come from a sell-side note – something to look out for.
Hitting the target
Two complementary sessions ran back-to-back in the afternoon, with a discussion titled ‘Sharpening your approach to investors’ covering everything from effective targeting to reaching out to SRI investors and tying in nicely with a grand finale look at the changes afoot in the world of corporate access.
One leading IRO explained how her company had created a tiered targeting system. In this case, the company looks at current shareholders, past investors, shareholders invested in peer companies and finally ‘big, global institutional houses that could be potential investors’. The mega-cap company then developed a model via which ‘we figure out how much each fund could have in shares’. Using this process, the firm works out its marketing plan.
Panelists also looked at different ways of attracting foreign investors and even how a company can use interest in a linked firm to attract attention. IROs discussed how frequently different tiers should be looked at and how the process might be different depending on company size. They then talked targeting tactics, with one IRO saying that at her company ‘we might sometimes be a little bit sneaky and give the US to two banks to see what they come up with’.
Accessing change
Even without a corporate access panel lined up to close the event, talk about targeting investors inevitably led into a discussion about the sell side and corporate access. The three-strong panel explained that with the Financial Conduct Authority’s (FCA) corporate access clarification less than two months old at the time of the think tank, it still remained to be seen exactly how things would change. But there were mentions of a feeling of ‘despair’ and ‘a sense of vertigo’ from some in the industry.
‘[The industry] won’t be run simply in response to the FCA,’ said one delegate. ‘Technology is going to drive how we arrange meetings, how many meetings we have – because the technology could allow scope for an awful lot more meetings.’
After the finer points of the FCA’s regulation had been discussed, IROs talked about organizing corporate access themselves or stating their openness to receiving direct calls from investors. Perhaps a two-tier solution will be implemented, mooted attendees at one table. Investors at the biggest institutions could make direct contact while smaller funds could use an online platform format. ‘The relationships with the big institutions are often so vital that you don’t want to rely on a technical solution,’ noted one delegate.
As well as concerns about the impact of the UK’s tighter rules, some pointed out that it would also have a democratizing effect. ‘In the past, access was essentially tied to trading volume so brokers always had a tendency to put you in front of people who flipped the stock a lot,’ noted one IRO. ‘We’ve all seen this; all of a sudden these pimply little hedge fund faces show up in the schedule that you’ve never heard about before – and these weren’t necessarily people you were targeting. In the future, with a flat fee, this actually enables smaller funds or larger funds or people with low flow to access corporates. Others agreed, noting that it might allow them to ditch those less useful intermediaries.
Another head of IR praised the in-house days she had recently attended at two large London-based houses, where several companies turned up on a particular day with their CEOs or CFOs. ‘I thought this very efficient for both sides and you didn’t need any brokers,’ she said, though she acknowledged this approach was perhaps more suitable to larger funds.
Half-jokingly putting ‘a provocative question’ to the table, one head of IR asked her peers, ‘Why don’t these funds simply pay us? My CEO wouldn’t come cheap but we could use this money to set up our own corporate access.’
IR Magazine Think Tanks are invitation-only events for select groups of corporate IROs. Find out about upcoming think tanks in New York, Toronto, Palo Alto and London at www.irmagazine.com/events.
