The Road Less Travelled
Public companies might do well to remember American poet Robert Frost when contemplating their next roadshow. As in the poem, The Road Not Taken, “the one less travelled by” can make all the difference in rounding out an investor following.
For reasons of convenience or even conceit, public companies often overlook smaller Canadian and U.S. cities during roadshow planning. They shouldn’t. Although it’s true that financial capitals such as New York and Toronto have more investors per square foot, cities like Ottawa, Winnipeg, Baltimore, Milwaukee, and Minneapolis are home to noteworthy institutional investors and a cadre of smaller institutional boutiques and retail brokers.
Missing Minneapolis means missing RiverSource Investments with $157 billion in assets, FAF Advisors ($36 billion), or Thrivent Financial ($82 billion), while missing Milwaukee means missing Artisan Partners ($86 billion).
Avoiding Winnipeg means avoiding Investors Group, part of IGM Financial with $121 billion in assets, Great West Life ($42 billion in general funds and another $38 billion in segregated funds) and the $5.4 billion Manitoba Civil Service Superannuation Board.
No Ottawa means no $5.3 billion CBC Pension Plan (investments in energy, materials, financials), no $1.3 billion CMHC Pension Plan (consumer staples, financials, telecom and information technology, energy, materials, industrials), no Brookfield Soundvest Capital Management, an affiliate of Brookfield Asset Management ($175 billion) and no Doherty & Associates Investment Counsel.
These are just the bigger names in the bigger secondary markets. Some companies, like those in Canada’s resource sector that are generally considered trailblazers on the road less travelled, include Ontario communities such as London and Mississauga, and the towns of Laval and Sherbrooke, Quebec because of the presence of retail brokers and high net worth individuals. Mutual funds are also masters of marketing their offerings in small communities.
Regardless of industry classification, be it financials, technology, consumer discretionary, materials or energy, visits to so-called secondary cities should be part of every outreach program.
That is easier said than done. Off-the-beaten path outreach requires active and skillful identification, targeting and tracking. Regardless of the road taken, the immutable truth is you have to match your company’s investment story with the target institution’s primary investment objectives or the needs of the local broker’s clientele. Large cap portfolio managers in smaller communities are no more likely to take a meeting with a small cap company than their counterparts in New York or Toronto.
How To Start Your Journey
There are various ways to target secondary centres. One is the do-it-yourself (DIY) approach: you purchase a database from an information provider, identify and screen prospects that match your company’s investment proposition and cold call. Those who take this route find it painstaking. Months of effort is often involved. Some smaller companies have also attempted to target investment clubs as part of DIY retail outreach. Although estimates suggest there may be more than 3,000 such clubs in Canada alone, there is no central clearing house for club contacts, making this a tough go.
Do-it-yourselfers improve their odds by i) attending as many investor conferences as possible and introducing themselves to institutions from smaller cities for follow-up and ii) speaking with other public companies that have investors/broker followers in targeted centres and asking them to share contacts.
Another approach is to enlist the help of your investment bank(s). Corporate access teams within the large banks provide a full suite of consultative – not to mention logistics – services that can help you target institutional investors in a variety of geographic markets. In this way, they can act as an effective conduit to new relationships, albeit relationships that they themselves have cultivated through trading. In this case, the investment bank can serve as both door opener and gatekeeper. On the retail side, asking investment bankers to arrange luncheons with their branch offices in secondary markets is also an appealing, if not always effective, strategy; the reason is that you never know if you are addressing a motivated broker or one who is simply required to fill a seat.
A third approach that can complement or, for orphaned companies without investment banking support, substitute for these actions is to hire a roadshow consultant that specializes in matchmaking. In this case, you pay a monthly fee and, in exchange, the roadshow consultant organizes meetings. Depending on the service, this can also involve follow-up with the attendees by the consultant to encourage ownership. Since roadshow firms want long-term customer relationships, they are incented to not just organize meetings and drive attendance but also to target attendees to ensure that they aren’t there simply for a free lunch.
There are several such firms in Canada and the U.S. that will work on a ‘best efforts’ basis to generate interest and they are used by small and large cap companies alike. In choosing such a firm, it is advisable to determine whether you want to target institutions or retail brokers (some specialize in one audience and not the other) and to speak to the firm’s other clients to determine whether the meetings were deemed a success.
This raises a central question: how should you judge outreach success? The most visible way is to see how many meetings you can set up and how many investors and/or brokers attended. It will be tough to match the attendance figures of larger cities like Toronto, meaning if attendance is the only measure of success used, you may be disappointed to find 15 brokers at your function in London (a number that is actually quite respectable). The better measure is did those in attendance buy/trade the stock?
Setting this as a measure of success requires patience (since it would be naive to believe that an institution would buy stock based on one meeting) and diligent ownership tracking.
The Long and Winding Road
Veterans of investor outreach know that a first meeting is only the beginning: taking the road less travelled means creating a follow-up plan to stay in touch with attendees and offering them additional insights into the company in the weeks that follow. In this way, secondary city outreach is a journey as much as a destination.
When venturing into the U.S., it also pays to understand restrictions (real and perceived) faced by institutions and brokers. Unless yours is a dual Canadian-U.S. listed stock, blue sky rules requiring registration may put a roadblock on the road less travelled.
Experienced IROs plan on secondary city visits once a year (unless, of course, their largest shareholder happens to be located in such a city!), versus at least three times a year to primary centres.
They may try to schedule these trips at times when the CEO has a customer-oriented reason for visiting, which may allow the visit’s cost to be amortized between marketing/sales and IR. Or the smaller centre itself may be a jumping off point for executives to travel to a remote location (Winnipeg, for example, serves as a hub for remote mines.) If there is no other reason to visit, IROs will often bundle a trip to a primary city with a secondary city stopover (Winnipeg on the way to Calgary, Edmonton following Calgary, Baltimore when in New York, Sherbrooke when in Montreal). Considering the cost of airfare and executive time, leveraging expense is wise.
Some companies have operations in smaller centres and organize an asset tour – or annual shareholders’ meeting – at these facilities. By inviting local institutions/advisors as well as owners from large cities, attendance figures can be bolstered. But be forewarned: attracting Toronto or New York institutions to an asset tour in a smaller city is not easy, unless the value of what is on display is high.
While the crux of your investment story should not change, it is judicious to include local flavour in your presentation and to prepare for audience questions that have a local context. For example, do you have prominent local customers or, conversely, a grievance with a local supplier or competitor?
Companies are often told by local institutions and brokers that their outreach is appreciated. But don’t be fooled into thinking that a secondary city audience will be easily persuaded to take a meeting or will be any less discerning. The fundamental rules of capitalism apply equally, whether you are in Regina or Toronto: if your company isn’t a vehicle to create value for an institution or a trade for a broker, you won’t get in the door.
Still, for a company prepared to put in the necessary mileage – both literal and figurative – to get the job done, the road less travelled can help pave the way to IR success.