Archive for November, 2008

As Wall Street restructures, IR reconsiders

November 29, 2008

As bulge-bracket investment banks continue consolidating, restructuring and/or imploding, investor relations professionals should be paying attention to present – and future – relationships.

One approach to the sell side, familiar to small caps that never could attract the Merrill Lynches and JPMorgans of the world, is to seek out specialized sell-side firms known as boutiques. Some observers already are completely writing off big Wall Street firms in favor of smaller, more entrepreneurial i-banks:

The supermarket model of investment banking died a very quick death this past fall. The future of the industry, many believe, will be fashioned after the boutiques – firms that focus on just a few key areas, but do so exceptionally well.

Joshua Hamerman, “A Tree Grows on Wall Street,”
Mergers & Acquisitions, December 2008

I personally think it’s premature to write obituaries on broad-based financial institutions as a business model. As the financial crisis works through the system and recovery eventually takes hold, no doubt the structure of Wall Street will continue to evolve. I expect the big players that emerge from the wreckage in the capital markets to operate under more scrutiny in the future – but to remain, well, the big players.

Certainly, IR people should be paying attention to these structural changes. That includes cultivating specialized boutique firms. Regional investment houses, independent research shops and direct relationships with buy-side investors are other options that should figure into the strategy.

Giving thanks

November 27, 2008

Those of us in the US celebrate today as Thanksgiving Day. Translated for people from other cultures, this means a day of getting together and eating way too much turkey, old family recipes for every other kind of food under the sun, and pie. Let’s not forget the pie.

Oh, yes … Actually, this day also has to do with giving thanks.

Today, I’m giving thanks for many things. God’s grace and a precious family come to mind. So does a calling to work that I enjoy. Laboring in this realm where ideas and numbers combine to convey a message of value for investors is very satisfying, even in a tough market. And I’m thankful for the great people with whom I am privileged to work.

Happy Thanksgiving!

Aim. Ready. Fire!

November 25, 2008

TargetI’m no expert on hunting, much less combat. And it’s been a long time since I took an NRA gun safety course as a kid. But in the art of financial communication, I do have an opinion on how we ought to take our shots: The order should be “Aim. Ready. Fire!”

By this, I mean that investor relations professionals should counterbalance the occasional tendencies in the executive suite or PR department to – really quick now – “Fire!” The call may come as, “Let’s get out a press release” … and then we’ll think about it. In more level-headed places, the first step may be to get something ready – develop a press release, write a Q&A, organize a conference call. Execute a tactic.

I’m all for preparation and action. But our first step really should be “Aim.” The IR professional in the room should ask, what’s our goal? Who are we trying to reach? Can we get more specific on objectives? How will this advance our business or support the company’s value? Can we get more specific on these target audiences? Are we aiming the right message to people who will respond to it? What will maximize our impact?

At the start of each tactic, that is, we should think through a little strategy.

© Copyright 2008 Johnson Strategic Communications Inc.

Coming our way from Washington

November 18, 2008

Broc Romanek, editor of TheCorporateCounsel.net and a platoon of specialized blogs, websites and print newsletters, shared rapid-fire ideas on what’s coming our way from Washington, and the new media, today at a joint meeting of the Kansas City chapters of NIRI and the Society of Corporate Secretaries and Governance Professionals.

I won’t try to capture it all, but here are a few ideas Broc offered the corporate legal beagles and investor relations folks in Kansas City:

  • The direction of the SEC could shift dramatically when President-elect Obama names a new chairman to the regulatory agency – perhaps a shareholder advocate rather than a Wall Street titan.
  • The “say on pay” bill, which Obama supported last year in the Senate and the House passed, will likely be enacted in 2009 … “a 98% chance.”
  • Public companies (and lawyers) need to get on board with new media technologies because investors and other people are getting their information online. The SEC guidance on website use for disclosure, though vague, gives momentum to more IR communication via the Web.
  • In 2008-09, we’re in a time of experimentation with wildly diverse interactive technologies. Many companies are trying new things: blogs, video annubroc-romanek-11-18-08-niri-kcal reports, Twitter, e-forums, e-proxy. My take is that the value of various tactics will only be known cumulatively, over time. But that’s a reason to think strategically, not bury our heads in the sand.
  • We need to deploy new metrics to evaluate how Investor Relations is performing – e.g., search engine optimization and website analytics to see if we’re reaching our audiences. “Websites are every bit as important as your physical place of business,” says Broc.
  • Shareholder activists and critics are adopting new media to great effect. Being able to respond rapidly and effectively, let’s say in a proxy fight waged online, will depend on IR and Legal being up to speed and engaged in the online communication scene.

Just a sample. Broc was provocative, entertaining and challenging to the conventional ways of thinking about investor communication. Thanks for coming to KC, Broc.

Quote, unquote – Buyer’s market

November 15, 2008

“Welcome to a buyer’s market without buyers.”

– Jason Zweig, “Joe Investor, the Markets Are All Yours Now,”
The Wall Street Journal, Nov. 15, 2008, p. B1

So there’s the sorry situation. For investor relations people, the agenda of the day is to continue building long-term relationships, as well as to seek out contrarians, nearer-term, in the midst of a dreary market. The good news is that Jason offers some tips on what to consider investing in personally. Then, again, the bad news is that common stocks are not really at the top of his recommended shopping list.

Haiku & the art of a key message

November 13, 2008

japanese-writingOccasionally clients have asked me to write copy for banner ads. Banners are the little boxes that appear when your browser arrives on a Web page, or you enter certain terms in a search engine, marking you as someone’s target audience. From a writer’s standpoint, the challenge of a banner ad is that space is rigidly constrained – “one line, no more than 35 characters (spaces included)” or something of that sort. Make your point, and get out.

The process reminds me of haiku, a Japanese form of poetry that most of us probably tried to avoid in school. English teachers use haiku as an exercise – the writer must compose three lines totaling 17 syllables, no more and no less. It’s a way of forcing students to squeeze an idea or feeling into a tightly defined template. The challenge is, how richly can you communicate in 17 syllables?

My point here is neither haiku nor banner ads. Rather, it is the art of writing a key message for investors. Some ideas:

  • Keep it short. In one sentence, where’s the value in your company?
  • Identify “magic phrases” – the essence that distinguishes your firm.
  • Use down-to-earth words. “Growing sales” not “revenue enhancement.”
  • Speak in active voice. “We took action” not “Steps were implemented.”
  • Begin and end on strong words, not “based on current assumptions.”
  • Practice. For every communication, start by writing a key message.
  • Then do what the great novelists and professional writers always do: Polish, polish, polish – until your message is practically haiku.

Thanks for reading

November 12, 2008

Today makes six months that I’ve been scribbling in this blog. More than 2,800 times, people have come by IR Cafe to read something about the practice of investor relations. As you can tell if you check regularly, I devote more energy to my day job than to blogging – even in a new media age, the paycheck takes priority. But I’ll try to keep coming up with ideas and tips on the nitty-gritty business of IR.

I deeply appreciate your stopping by. Send me your reactions or ideas, if you’d like to address something special here. Thanks!

“Dear Mr. Market …”

November 9, 2008

Jason Zweig offers up a clever commentary on the extreme volatility of the market, “Getting a Frazzled Mr. Market to Settle Down,” on p. B1 of the weekend edition of The Wall Street Journal – worth going back to if you missed it. He begins:

Dear Mr. Market,

Since you refuse to take your meds, we have to get your mood swings under control.

And you really do need to calm down. …

He goes on to document that the market has been extremely volatile, by historical standards. So far in 2008, we’ve seen 20 times when the Dow jumped or dropped more than 5% in a single day – something that happened only 14 times during the entire previous decade.

Zweig, like many market observers, would like the market to settle down. He endorses an idea for a “voluntary stabilization program” in which companies would enter the market to help stabilize their own shares on days of great volatility. XYZ Co. would put up cash – maybe 1% of its market value – to buy a set number of its own shares on any day the price fell by such-and-such percent. On the other side, XYZ would commit to sell a certain number of its shares if the price jumped more than a particular percent. Hence, stabilization.

My feeling is that the market will settle down when the underlying forces driving volatility – such as uncertainty about the quality of financial-industry balance sheets, the lack of confidence of consumers and businesses in the near-term economy, and the (borrowing a word from our president-elect) erratic political posturing of virtually everyone in Washington – calm down.

Until the macro fundamentals settle down, safety-valve mechanisms may be OK as balms for people’s nerves … but not much of a solution. I’d be interested to know what CFOs or investor relations people think of the stabilization idea. After all, real companies are the heart of “Mr. Market.”

Communicating value … to an 800-pound gorilla

November 5, 2008

One upshot of the current environment, for some companies, is a change in the identity of our true audience. As an investor relations person, I’ve always thought of investors – individuals, portfolio managers, value, growth, whatever – as the audience.

But it’s not always so.

I was reminded of this by “Preparing for a Shrinking Economic World,” a column in the Nov. 1 issue of Genetic Engineering & Biotechnology News. Speaking of the biopharma business (as you might guess from the publication), the article notes that giant pharmaceutical companies are awash in cash – $9 billion on average among large caps – while the bear market limits the options of smaller companies:

Alas, there is one liquidity event that won’t be appearing any time soon: the biotech start-up going public. Since the first of several painful Wall Street events began, there have been several biotech companies that have withdrawn their plans to go public … This clearly leaves biotech in a state of vulnerability, as IPO hopefuls may seem further from exit. This also means that ready, willing, and able buyers from Big Pharma will perhaps make a strategic acquisition.

A piece in the Nov. 10 issue of Fortune, “Big Tech Goes Bargain Hunting,” makes exactly the same point about small to mid-size tech companies and the cash-rich giants of technology.

Truth is, this applies to many industries. I’ve heard entrepreneurs in a variety of businesses talking about exit strategies: Private companies no longer count on doing IPOs, but view their most likely exit as being acquired. In the public company world, too, smaller companies are thinking more about acquisition as a path to maximizing shareholder value.

So let’s talk about the 800-pound gorilla. Our audience may not be a mutual fund analyst in Boston or a little old lady in Kansas City. The real target audience (or at least one) may be a bigger company that, in a few months or years, may replace our many shareholders with a single 100% owner. And our public disclosures also influence these potential acquirers.

Are the messages the same, or different, for an M&A audience? As investor relations professionals, committed to maximizing shareholder value, we need to study up on this class of investors. They may be strategic acquirers in the same industry, or financial buyers like private equity funds. I don’t know all the answers, but we ought to re-read The Quest for Value and pay attention to news and trade articles explaining the motivations and structuring of acquisitions.

My impression from a few M&A experiences is that deal-oriented investors do have different information needs, or preferences. Earnings per share are out; the acquirer or i-banker will apply ratios to EBITDA or net income. Enterprise value, debt on the books and cash in the bank are intensely relevant. Assets that can be sold matter. Working capital and cash flow. In the biopharma field, and perhaps others, future products also drive value – again, often via multiples of projected cash flows.

I remember, years ago, writing an annual report for my employer – our last as a public firm – while top management was negotiating to sell the company. The deal was finalized in the same time frame as the annual report. It was gratifying when, a few weeks later, someone on staff with the new owners told me their top management had been especially impressed by the extensive new-drug pipeline graphic that had been a labor of love in this annual report. IR mattered.

Yes, October was ugly

November 1, 2008

In case you’re wondering, yes, the bear market is ugly – especially that over-the-cliff plunge in October. This week, the finance & econ blog Calculated Risk offered a graph comparing the current slide in the S&P 500 (bright red line) with past bear markets from recent history:

I guess we’re back to figuring out how public companies can paddle upstream (next to impossible), or at least continue to build credibility and relationships with investors. See posts here and here. On the other side of this, we all hope to emerge looking – well, not so ugly.