2017 reflections on buy-side sentiment

Our Nasdaq Global Perception practice regularly engages in productive dialogue with the global investment community. Over the course of 2017, a number of salient themes emerged fr om our conversations with buy-side professionals, which we have highlighted below. For IR professionals and Street-facing executives looking to add value to dealings with an increasingly complex marketplace, we believe the following takeaways are considerations that can help achieve that goal:

Before embarking on meaningful investments, a growing number of investors feel compelled - or are even required - to meet with company executives, particularly the CEO and CFO, as part of their due diligence process. Investors want a degree of comfort that can only be gauged during in-person meetings. While investors certainly understand the primary obligation of the C-Suite is running the business, management teams that show a willingness to proactively engage with the marketplace can elevate their standing within the broad universe of investment opportunities.

Tip for IR: Partner with experienced targeting practitioners to prioritize the investors that senior executives should meet with on a one-on-one basis. It’s important to assess the effectiveness of such interactions and determine which engagement strategies should be maintained or altered over time.

With a discerning eye on corporate governance practices, the investment community is increasingly interested in having access to the non-executive members of the Board of Directors to garner perspectives on companies through a different lens and to gain a clearer understanding of the unique skillsets that they bring to their respective board seats. With such interest from the marketplace, it is imperative that independent board members are attuned to the dynamics of the capital markets, and keep their pulse on evolving trends and sentiments.

Tip for IR: Identify board members that are best-suited for Street-facing activities and provide coaching on the optimal way to interact with the marketplace. As part of the coaching process, provide the board with regular updates on institutional activity within your shareholder base, broader industry capital flows, market developments, ongoing IR activities and outreach, and feedback from the investment community.

With limited resources and time constraints, generalists continue to gravitate towards public companies that provide easily digestible value propositions and focused strategies. However, on the other end of the spectrum, there is a pocket of investors that prefer investing in complex, nuanced stories with less transparency wh ere they feel they have differentiated expertise and channels in the business/industry. This allows them to make better informed assumptions and bets relative to the average investor. That said, as pressures to perform mount within the investment world and competition for investment capital intensifies for corporates, companies with complicated stories - diverse business segments, highly technical industries, and novel, unproven science/technologies - must provide ongoing educational tools and events to clarify the story for the financial community, or risk being overlooked as an investment idea by the highly sought after generalist population.

Tip for IR: Beyond holding a broad-scale event like an Analyst Day, provide educational tools that can be easily accessed on your corporate/IR website. Investors expect regularly upd ated corporate presentations, which provide a clear overview of the business, financials and the capital allocation framework, as well as key business developments. Also, routinely leverage divisional heads to provide deeper layers of insight to the investment community at non-deal roadshows, industry conferences, and company-hosted events.

Third-party perception studies are considered a highly valuable and essential, proactive effort by IR, management, and the Board to garner sentiment and objective feedback, which may be used to better remain in proper alignment with the best interests of shareholders.

Tip for IR: While perception studies are often triggered by significant changes at the company, they should also be conducted when there are behavioral shifts within the capital markets or macroeconomic events that could have an impact on the way the company is perceived by the marketplace.

When execution missteps occur, investment professionals are more likely to remain committed to companies that are proactive and maintain open lines of communication with the investment community. The market expects company executives to not only take accountability for mistakes or performance shortfalls, but to also provide a defined roadmap towards recovery and sustainable performance.

Tip for IR: As part of your annual IR planning process and strategic review with company executives, draw up an investor outreach action plan for navigating crises or major business setbacks, which is fluid and can easily be refined over time. Paramount to the action plan is ongoing engagement with the marketplace, even in challenging periods.

As companies evolve and a natural churn in the shareholder base occurs, investors with competing investment criteria will expect the same level of consideration by management. That said, corporates face the challenge of not being able to please all shareholders, so they must be willing to stand firmly by the long-term investment proposition and cultivate existing relationships as well as attract new investment capital on that premise.

Tip for IR: Partner with experienced perception practitioners to assess how well your story is resonating with the marketplace and receive recommendations on messaging enhancements to help increase the probability of success in attracting high-quality investors that may positively impact your long-term valuation.

After the significant upside the markets experienced in 2017, investment professionals are keenly focused on how companies will allocate capital to unlock additional shareholder value. Further, on the heels of U.S. tax reform, many investment professionals have se t expectations on how benefitting companies should deploy their capital. Should companies opt to deploy capital in a way that investors perceive as suboptimal, executives should provide a clear explanation of the rationale of such actions along with the criteria used to come to a decision.

Tip for IR: Whether your company is engaged in discussions about the most optimal use of capital, or emerging from a recently announced change in capital allocation, conduct a perception study, coupled with a capital deployment scenario analysis, to understand the implications for your shareholder base and how to effectively address risks and opportunities.