In September, the inaugural IR Magazine Awards & Conference – Small Cap underscored how the opportunities and challenges for small-cap companies are different from those experienced at large and mid-caps. Here are the top four highlights from the event.
1. Find your market
Small caps should be realistic about their size and understand who their most likely investor targets are, said Jason Paltrowitz, executive vice president of OTC Markets. All too often, small-cap companies become preoccupied with targeting institutional investors, but recent research from OTC Markets shows that firms with a market cap of less than $250 mn are 70 percent-owned by individual, self-directed investors on average, while companies below $100 mn in market cap are 80 percent-owned by individual, self-directed investors, on average.
‘Don’t think you’re bigger than you actually are,’ observed Megan Capay, a member of the corporate relations team at Surveyor Capital. ‘It’s important to speak to as many investors as possible and to attend as many small-cap and industry conferences as possible.’
2. Refine your message
Once a small-cap company has identified the right conferences to attend and investors to target, it is crucial for it to ensure it’s telling an enticing story. ‘I would start with the process of getting into the mindset of a small-cap investor,’ said Timothi Trombetta, advisory specialist in global investor targeting at Nasdaq. ‘They’re focused on your vision and not really worried about how you function.’
Altus Group and Stoneridge won awards for best IR by senior management and best IR by a small cap company (under $500 mn), respectively, after refining their messaging through marketing. Both businesses had undergone significant strategic transitions but struggled to have the change understood by the Street. The positive change was most notable at Altus Group, which saw its market cap increase by more than 50 percent in three years.
3. Coach your management
Investor relations teams at small-cap companies have a particularly crucial role to play in preparing the C-suite, and especially the CEO, for life in the public markets, according to Greg Taxin, managing director of Spotlight Advisors. He said he is much more likely to encounter first-time CEOs at small-cap companies. ‘Help out these first-time CEOs,’ he said. ‘Bullet-point the story, script the story, write FAQs and help them understand the audience. Often chief executives can go off on tangents and it’s IR’s job to keep the C-suite on the story.’
This was particularly apparent at Banc of California, which won the best IR by a small-cap company ($500 mn-$1 bn) award. Having witnessed a change in CEO, CFO and five board members in the last year, Tim Sedabres, senior vice president of corporate strategy and head of IR & finance, knew it was important to tell his new management and directors what the Street was saying. ‘I need to build a mosaic around what people are saying about us. I bring it back to the board, which informs not just the IR strategy, but also the company strategy as a whole,’ he said.
4. Understand the sell side is changing
The changes Mifid II will impose on research and corporate access businesses means the sell side will shrink, said Peter Sidoti, CEO of Sidoti & Company. Small-cap coverage will decrease because equity research companies will look for higher-yield stocks, while other panelists said there will be fewer opportunities for small caps to appear at conferences. But there is a silver lining, added Sidoti: ‘The good news is that it will drive the importance of IR because issuers will have to do more to get coverage and tell their story.’
This article originally appeared in the winter 2017 issue of IR Magazine.
