Highlights - 03/06/2019

How to effectively approach your Targeting Plan

For many companies, attracting new investors is one of the most important objectives of an IR department. Effective targeting enables an IRO to balance the limited time available from both senior management, as well the IR team.

There are many moving parts to consider and executing the ones that will derive the best results for your particular need at a specific given time takes advance planning.

While targeting is a continuous process, there are few key steps, including understanding where your company is positioned relative to peers and competition, appropriately selecting and prioritizing your list, understanding where and when to include hedge funds and finally, measuring you progress and effectiveness.

IROs should start by assessing where your company lies along the Value and Growth spectrum.

Another essential part of targeting begins with Shareholder Identification. You need to know who your shareholders are and therefore also identifying who they are not.

The low-hanging fruit of target includes peer targeting and identifying underweight shareholders. Such investors are a natural target, as they are already familiar with your company. Additionally, underweight holders are often overlooked by IROs who are typically focused on top shareholders.

Given the analysis and research required to value a stock typically requires considerable time, and most investment managers like to follow a company and its management for some time before making an investment decision, do not wait for valuation issues to arise to begin searching for new investors.

Furthermore, the identification of the appropriate contact is the key to any targeting strategy. Details such as whether an analyst or investor prefers to receive their content through the IR website, via email, face-to-face or even just through their Bloomberg terminal, can be key to amplifying the impact of each individual message.


Moving Target

IROs should determine a set of ‘fundamental peers’, similar to where they expect their company to be at a given point of time in the future. You’d be surprised at some of the companies with similar forward attributes, many which may be well outside of your current sector. As an example, many MedTech firms may actually trade like high growth Technology, and should be looking well outside of traditional Health Care-oriented holders.

The challenge is to find the right mix of shareholders, given a need to attract some short-term investors, with the aim of fostering liquidity in your stock, balanced with securing enough longer-term investors to help mitigate price volatility.

It is crucial to prioritize the investors within each tier.


Hedge Funds

Many Targeting summaries will say to avoid hedge funds at all costs. Hedge fund managers are often portrayed short-term traders, shorting stocks, and often display activist styles. But not all hedge funds should be avoided. Indeed, some can be beneficial as shareholders.

And if you are relying on the sell-side, you will NEVER be able to avoid them. As such, you need to focus on the more desirable firms in this group.

Another reason hedge funds can be good targets is they are often more knowledgeable about a company than other investors. That is because hedge funds typically manage portfolios with fewer holdings than traditional money managers.

Hedge funds also have a relatively greater appetite for risk and can therefore provide price support during periods of distress, when other investors are selling or unwilling to invest. I have seen agile IROs effectively utilize hedge fund targeting following a disappointing earnings release to mitigate some of the post-earnings pressure on the shares.


Environmental, Social and Governance

Institutional investors are increasingly integrating ESG assessments into their investment process. In the new era of ‘shareholder stewardship’, companies and investors face an increased responsibility to focus on sustainability issues.

As a result, the scope of Socially Responsible Investment (SRI) has significantly expanded to look beyond purely ethical motivations, encompassing ‘best-in-class’ companies with both sustainable and competitive advantages.

While ESG & SRI should not be direct focuses of your Targeting efforts, you should be conscious of how they drive specific targets investment decisions.



While IR Targeting is often compared to a Sales process, and it is, IROs have the benefit that the ‘customer’ often WANTS to hear their pitch (unlike most cold calling). 80% of investors indicated that potentially compatible companies initiating direct contact will or will possibly prompt them to conduct further research.

Furthermore, investors appreciate and welcome proactive contact from IR professionals, with 70% asserting they are “open to good fit companies reaching out”.

So, once you have a list, prioritized it, and made initial contact, what are the next steps to cultivate the relationship?


Sell Side Roadshows and Conferences

Many IROs rely on roadshows and conferences to meet their investors. According to NIRI, on average, U.S. companies attend 5.6 domestic equity conferences each year, spending 10.1 hours at each conference.

There is nothing wrong with this approach, but be aware that when using brokers, be mindful that they tend to favor high-turnover institutions because these investors generate more trading commissions.

Additionally, using the same research provider all the time it can limit the group of investors you are seeing, and repeat many of the same holders.

With that said, investors report they are inundated with voicemails and emails from people vying for their attention, and sell side analysts help sort through communication overload. So this should remain a necessary and effective part of your Targeting approach.


Going Direct

IR Magazine’s 2015 research report, Direct targeting: What’s changed?, indicated that almost half of IROs have increased their direct targeting of investors, sidestepping the sell side and reaching out to existing and potential investors themselves. Overseas, MFiD has only increased this trend.

Additionally, it is not always necessary to go to your target investors – you can have them come to you. Hosting a one-day corporate visit is an efficient way to meet numerous investors at one time, as well as an effective opportunity to familiarize them with your company in the best place to do so: on site.

You can also invite groups of target investors to tour your headquarters and major operations centers or to meet with members of the management team.


Measuring Effectiveness

Investor relations requires considerable resources, both in terms of time and money. As is the case with other uses of corporate resources, a well-managed company needs to measure its return on investment.

The IR department, however, should not be solely judged on the number of new investors it has managed to attract. Equally important is the quality of the investors it has attracted.

Concentration and diversification of ownership is also an important measure. While an IRO cannot prevent an investor from acquiring a large stake in their company, he/she can help set the stage for future demand when it is needed.

Furthermore, obtaining investor opinion regularly is one of the best ways to gauge an IR department’s effectiveness.

While all of the above summarizes how to effectively approach your Targeting plan, we’ll be back with follow-on analysis and demonstrations of how MZ can help IROs with their Targeting plan and approach. Future posts will include how to use MZ’s newest technology platform, MZiQ, to identify appropriate targets, using our industry leading data on current and peer holders, our in-depth Contact profiles and CRM tool, as well as how to create reports to measure effectiveness. Additionally, as one of the few providers who have an integrated product offering, we’ll also include how to use your IR website as part of your multi-sided Targeting strategy.


Peter Belesiotis is Vice President of Capital Markets Intelligence at MZ.