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Coming to America – How to make equity marketing a success

An increasingly global economy requires that companies gain access to the largest and most cost effective sources of capital to fund their success. This often means that non-U.S. companies must develop strategies and programs to attract and retain the largest source of public equity investment capital in the world – the U.S. institutional market. For companies with minimal U.S. revenues this can be particularly challenging, but necessary. Simply put, the scale of the opportunity cannot be ignored and was highlighted in a recent Bank of America Merrill Lynch Fund Manager Survey, “Allocations to Eurozone and Japanese equities have both increased, but investors have indicated that the shift to Europe has only just begun. A net 63% of respondents say that Europe is the region they would most like to overweight in the coming 12 months – a record since the question was first asked in 2001. The reading has spiked from a net 18% preferring Europe in January.” [1]

European valuations, despite recent highs and currency headwinds, remain attractive to U.S. investors as they tend to be below those of comparable U.S. stocks. Developing a strong U.S. investor base is increasingly the best option for maximizing the multiple potential for these companies with superior growth prospects.

Many companies of sufficient scale are already seeking to address this opportunity by building relationships with key U.S. investors through roadshows several times a year, often utilizing their broker relationships and corporate access teams at investment banks. While non-deal roadshows and industry conferences can be effective, there are structural, educational and cultural impediments that need to be overcome to ensure that these marketing trips deliver their expected ROI.

It is important to understand the mindset of the American institutional investor, as well their perspective on the addressable investable market your company competes in. In genuinely globalized industries there will be a strong base level of understanding across all operating markets however for those companies with principal revenue streams in periphery European or emerging markets it may be necessary to bridge an education gap particularly in those markets where standards of governance or economic performance are causes for concern and therefore a perceived increased risk profile. However, as it becomes more difficult for them to actively manage their way to alpha, more agile investors are looking for underfollowed or misunderstood stocks outside the US to drive superior returns. Increased exposure to European companies could do just that.

With globalization, an increasing number of mid-size European companies are bringing their products and services more broadly to the U.S., acquiring American companies and building manufacturing or logistics facilities here. This is a great platform to build an investor relations presence and program in the U.S.

A few key insights that can aid in building a U.S.-focused investor relations program:

  1. U.S. Investors increasingly want diversification by industry, geography and currency. The key to an enlightened investor narrative for European companies is a tight story on the varied markets the company competes in, the unique development opportunities within those markets and the management team’s expertise in executing in these sectors or regions. If there is a growth opportunity either through a unique product or service or some other competitive advantage, they will pay a premium for the stock. If instead, they view the competitive position as replicable in the U.S., their chances of investment are significantly lower and they are likely to buy only on extreme value particularly given macro-economic and foreign exchange issues.
  2. U.S. investors also need to be provided a significant amount of information and data to obtain, in their view, an accurate picture of the risk and opportunities in an international investment. U.S. portfolio managers tend to have less knowledge and access to data on trend information in specific markets, particularly on a country-by-country basis. They also may have less intrinsic understanding of regional specific regulatory and economic trends that change the risk profile of an investment in the stock.
  3. U.S. investors require an enhanced standard of disclosure and transparency that replicates domestic market standards. Guidance, both quantitative and qualitative, becomes increasingly important particularly in the context of bridging an ongoing information and education gap. While broadly annual guidance is increasingly relied upon given market volatility, in some sectors quarterly guidance remains paramount to ensuring both investor understanding and confidence in management. Access to senior management at least once per quarter, and weekly access to an investor relations officer who is sufficiently immersed in the company’s financial and operational detail is also expected. In addition, given that these investors are not likely to be getting direct calls from sell-side analysts on European companies, there is a greater reliance on digital information and communication to undertake initial analysis of the company and to keep regularly updated around key events.  This is particularly the case in markets where regulatory announcements are disseminated outside U.S. operating hours which puts U.S. investors at a trading disadvantage.

It is imperative that companies seeking to maximize the enterprise value for their growth prospects access the U.S. The U.S. is a highly specialized investment community, with deep understanding and resources, who will pay a premium when they feel they have unearthed a corporate story with superior growth prospects. In order to achieve this, companies need to ensure that they tell their story in such a way that it resonates and that they have the relationships and resources in place to help them identify where it will resonate. The combination of which will ensure that companies maximize their ROI.

[1] http://newsroom.bankofamerica.com/press-releases/economic-and-industry-outlooks/bofa-merrill-lynch-fund-manager-survey-finds-investo-1