Panelists from the buy side are always the most in demand at IR Magazine Think Tanks, including at the most recent one in Palo Alto, California on March 24. This time a new breed of buy-side pro debuted: the hedge fund corporate access executive.
The problem hedge funds face is that they’re seen as short-term short-sellers and frequently barred from meetings at a time when access to management is crucial for investors. As a result, in the last year several large hedge funds have hired corporate access executives from the sell side, though it should be said that organizing meetings is but a small part of their job. Their main goal is an image makeover for hedge funds. ‘Our guys need to be a lot more thoughtful about the demands we make of management, how often we meet people and even how we behave in meetings,’ said one sell-side veteran who recently joined a hedge fund. ‘We’re trying to put forward people who know how to ask the right questions and understand the long term-vision of a company.’
Vaulting to the other end of the buy-side spectrum, some mammoth sovereign wealth funds find it hard to get meetings with US companies that may not know who they are or that think they’re activist investors instead of active investors with strong but benign ESG principles. ‘We’ve always had a great experience with Norges Bank Investment Management, Singapore’s GIC and the Abu Dhabi Investment Authority,’ countered a large-cap financial services IRO. ‘They come through Silicon Valley a couple of times a year and always want to stop by. If we can get management, great; if not, they’re more than happy to meet just with IR. We always try to roll out the red carpet.’
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Meeting manners for hedge funds Mark Pellegrino, Balyasny Asset Management’s new head of |
Lessons from M&A
With M&A at fever pitch and excess cash still sloshing around Silicon Valley, a session on M&A communications replaced the usual shareholder activism discussion at the IR Magazine Think Tank – West Coast. A financial communications consultant, an outside lawyer and two IROs offered up advice. Prepare far in advance: ‘One of our first questions is always, Is IR under the tent?’ said one panelist, urging companies to involve IR at the earliest stages of due diligence. ‘You’ve got to be buttoned up on the strategic and financial rationale for the deal, and you have to understand how shareholders will react.’
Expect leaks: ‘In any deal process, you should expect that there will be a leak,’ said the securities lawyer. ‘Have your playbook ready to go and know how to react. If you’re scrambling, the process will be put at even greater risk. A leak can have an impact on timing, potential purchase price, deal terms and trust.’
An auction process is far worse for leaks than a negotiated transaction between two companies. Every time a potential buyer is brought in, 10 other companies could join the process, too: law firms, accountants, HR consultants, financing resources, and so on. ‘At the end of the process you could have 100 different parties with knowledge of the transaction,’ the lawyer added.
Collaborate early: ‘Having good relationships with the corporate communications team helps you keep track of leaks,’ said an IRO on the panel. ‘On regulatory issues, you need to be constantly talking to legal, especially because the arbs are watching regulatory developments very carefully and you can be flooded with calls.’
Be sensitive to the communications needs of employees: ‘You can’t say anything to employees that you’re not also telling the market,’ conceded the lawyer. ‘But you can find a good balance in talking about how employees of the acquired company will be affected once the deal closes.’
For IROs, dealing with employees is especially difficult during a go-private deal, when drastic cuts are typically expected: ‘These are people you work with. They’re reading your body language and checking your mood. You have to work with the communications and legal teams to [decide] what to tell them. We advised management to communicate as much as we could to our employee base.’
Be ready for interlopers: ‘We’re seeing a lot more deal-jumping by Chinese buyers. It’s the macro topic du jour, and suddenly everyone knows what CFIUS stands for,’ said one panelist. (The Committee on Foreign Investment in the United States can block an acquisition by a foreign buyer in certain cases, such as when sensitive technology is involved). ‘An interloper always brings a lot of complication to a deal and to communication with the Street. Plus, Chinese buyers do business differently and M&A differently. You need to be prepared to communicate about a host of issues you’re not used to.’
Making plans & looking back
Setting goals for IR and measuring performance have often come up for discussion during the 11 years IR Magazine has been holding think tanks in Silicon Valley, but there are always fresh twists. When judging the effectiveness of IR, the CFO is particularly well placed. Therefore, to impress him or her is to excel at IR. ‘When you walk into an investor meeting with your CFO, the relationship you have with the shareholder should be evident from the start, and not only in terms of the background information you provided beforehand, but also in the personal interaction,’ one attendee said. ‘Does the investor see you as a credible source of critical information about your company and your industry? It’s a soft measure, but it’s one of the most effective ways to put forth the value of IR.’
The influx of former sell-side analysts to IR jobs underscores the qualities valued by senior management. ‘An IRO needs to be someone the CEO and CFO go to for competitive intelligence,’ said one panelist, with another adding: ‘To evolve and grow as an IR department, you have to be seen as subject matter experts, both by the Street and internally.’
While IR teams commonly measure their volume of activity and the outcome, it’s even more important to measure the quality of the engagement: ‘Did the target understand the story? Did he/she ask the questions we expected? Were we prepared to answer?’
A completely novel yardstick for a company’s communications sparked interest: at least two IROs in the audience talked enthusiastically about a new service that analyzes earnings releases, scripts and transcripts and, using a linguistics database, scores them for factors like confidence, clarity and trust.
‘Hedge funds have been trading on this kind of data analysis,’ said an IRO. ‘Now corporates have access to it, too.’ Another declared: ‘We prescreen our press release and earnings call script, and then benchmark them against our peers. We love it!’
This article appeared in the Summer 2016 issue of IR Magazine
