While Donald Trump’s reelection as US President is often viewed as positive for small-cap companies, most do not see the result as an opportunity to rethink their strategy, according to a poll carried out during a recent IR Magazine webinar, held in partnership with One 44 Advisory and Consulting.
The event, titled ‘Navigating today’s capital markets: Essential strategies for small-cap companies,’ discussed the shifting capital-markets landscape for smaller issuers and how they can boost their appeal among investors.
Click here to watch a replay of the webinar.
Of the audience members who voted, 77 percent said the election outcome had not changed their plans for 2025, while 8 percent said it had and 15 percent were unsure.
Speaking on the webinar, Scott Chronert, US equity strategist at Citi, said a number of factors are currently in small caps’ favor, from potential deregulation to attractive valuations. ‘We think that small cap is actually in a in a really good place to perpetuate – let’s call it Trump trades – from here,’ he said.
James Hasso, founder and CEO at One 44 Advisory & Consulting, said a further driver of small-cap performance is likely to be the return of M&A, supported by a looser regulatory approach.
‘Companies should be ready for some of their larger-cap counterparts to target them, because valuations are compelling,’ he said. ‘You’ll have a favorable backdrop for M&A, so I do think that’s a big change we’re going to see in 2025.’
The webinar also focused on the biggest challenges facing small caps in today’s market. In an audience poll, the most common option was attracting new investors (selected by 47 percent), followed by trading liquidity and sell-side coverage (both cited by 17 percent).
‘I think the biggest challenge is differentiating yourself in a very large universe,’ said Chronert. ‘You take the Russell 2000… that’s a very crowded field to begin with. The issue that many investors have is the amount of time they have to devote to analyzing and researching that myriad of companies.’
He added: ‘My bottom line here is that anything you can do to make it easy for said investor base to understand, appreciate and respect your company’s setup is mission critical.’
Smaller companies need to make it easy for investors to understand their story because they ‘don’t have to pay attention to it,’ explained Charles Sebaski, managing director and head of IR at Ambac Financial Group. ‘They have to get to a point of wanting to go there,’ he said. ‘There’s a spoon-feeding element of trying to accomplish that.’
Hasso encouraged small caps looking for new investors to think beyond just targeting well-known mutual funds and additional sell-side analysts. ‘We go into a lot of work around mutual funds that can fit into the criteria of a company based upon the liquidity, their prospectus and what their needs are as a fund,’ he said.
‘There’s a great deal of investors out there who will look at a number of small-cap companies. You just have to start to look at the second and third-tier funds, platforms and individual family offices – and that takes time and work.’
To watch the full webinar, please click here.
