The European opportunity is not without its challenges
Longer travel distances, time zone differences, and higher travel costs make maximizing the value of non-deal roadshows in Europe critical. This can be a challenge as most companies aren’t deeply familiar with the market and tend to rely on investment banks. This reliance is problematic, particularly since most banks have reduced or eliminated distribution of U.S. equities to European investors.
Furthermore, the corporate access landscape in Europe has changed significantly since the introduction of MiFID II. The ensuing reduction of traditional research and sales support has made it harder to engage with long-term investors. Banks have also shifted more resources to servicing customers who generate the most trading commissions, leaving long-term European investors, or DEAUM, under-served. The result is that many European non-deal roadshow schedules are either spotty or dominated by high- velocity hedge funds.
“We recently back-tested meeting history for 100 companies of various sizes and industries, and found that 70% of bank-sponsored meetings were held with high-turnover funds.”
Meeting with the “wrong” types of investors, or those who have not been sufficiently qualified, is generally regarded as a highly inefficient use of management’s time. Given the substantial commitment required from the C-suite for a European non-deal roadshow, the outcome must be positive. We believe this is another reason, along with the misconception about the size of the European market, that IROs have been hesitant to actively market in the region.
Taking a deliberate and proactive approach to investor engagement
Maximizing the opportunity in Europe requires the IRO to take a thoughtful approach.
Securing C-suite time and relying on banks to deliver is not the best recipe for success. The challenge is not insurmountable, however. From our experience working with numerous U.S. companies across various sectors and market capitalizations, we know that the key to accessing the European market is developing a comprehensive investor engagement program.
Companies would benefit from adopting a broader approach to targeting, expanding exposure to generalist portfolio managers and uncovering lesser-known specialist managers. This strategy can be very effective to build a critical mass of interest in any geography. We find that initial meetings can be conducted very effectively by the IRO virtually. Collecting comprehensive post- meeting feedback is equally important as it helps to validate where interest truly lies and to identify where that interest can be cultivated further.
Additionally, local knowledge of the market is extremely helpful. Understanding regional nuances and the European investment landscape is essential. This could mean hiring an IRO based in Europe or partnering with a third-party firm specializing in European outreach. It could mean both.
Companies need to make a commitment to expand their shareholder bases overseas
Ultimately, it is important to treat European investor engagement – and investor engagement in general – as a sales and marketing activity, not as a one-off exercise. Institutional relationships need to be cultivated over time, and investors often meet with companies several times before committing capital. This means building an active marketing pipeline, maintaining consistent engagement, and ultimately developing new shareholders.
Simon Rose, CEO and Co-founder of Rose & Company, a leading independent capital markets advisory firm offering strategic counsel and tailored solutions to help companies across industries and geographies increase market valuation.
www.roseandco.com
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