Why MiFID II Could Affect Your Company's Research Coverage and What To Do About It

What is MiFID II?

MiFID stands for The Markets in Financial Instruments Directive. It provides the framework for legislation regarding investment services in Europe. MiFID II is the second installment of the initial directive aimed at addressing issues that were not fixed in the first version. Effective January 3, 2018, MiFID II’s mission is to improve the transparency and accuracy of research in the market and to enhance investor protection. Although MiFID II was legally introduced to the European Union last summer, The European Securities and Markets Authority (ESMA) was given until January of 2018 to create detailed rules for the member states to implement. The directive has set forth to change parts of how the market functions including overall market structure, governance, investor protection, business conduct, investor research, client categorization, algorithmic trading, best execution, pre-post trade transparency, transaction reporting, trading rules, and third-country access.

Technically, MiFID only applies to firms located within the European Union. However, the proposed regulations will have major global implications. One of the most impactful changes outlined in MiFID II for non-EU firms prohibits asset managers from paying for research through bundled advisory or execution commissions. Instead, buy-side institutions will pay for research from either their own pockets or via supervised Research Payment Accounts (RPAs). International buy-and-sell side communities operating in Europe will have to embrace MiFID II in order to effectively continue their practices within Europe. For those not interacting with Europe, MiFID will likely disrupt a company’s practices through either compliance policies or the competitive pressure to provide transparency to clients. Experts predict that there will be a global shift towards transparency in research payment in the post-MiFID II market.

What does it mean for research and brokerage? Because asset managers are required to begin paying for their research explicitly, they will no longer receive the extensive amount of research for cheap that they do today. Instead, sell-side analysts will price their research services for asset managers to purchase. As a result of this explicit pricing and scrutiny from end-investors, asset managers will become more selective in their approach to research spending. Buy-side institutions will most likely opt for high quality, sector-specific analysts to conduct their research instead of using broad, largely generic research providers that are common today.

Due to increased selectivity among asset managers, research brokerage firms will have to adjust their services. Since MiFID II demands disclosure in research pricing, brokerage firms will compete to provide the best value for research. Additionally, less demand from the buy-side means narrowing coverage and big cuts for research providers. Experts predict that this shrinkage will lead to a reduction in coverage for smaller companies or unattractive sectors as analysts hone in on the bigger, more lucrative businesses. This could mean a dramatic drop in the quantity and quality of coverage for small to mid-cap companies. However, as the larger brokerage companies drop coverage on smaller stocks, opportunities will arise for mid-to-small tier brokerage firms to provide high quality research on small to mid-size enterprises.

What does it mean for small public companies?

The demise of small cap coverage is not a new topic, but MIFID II only accentuates the trend. Here is what a small public company should do:

Support your existing analysts to minimize risk of losing coverage

Support of existing covering analysts is increasingly important. Attend their conferences, selectively go on the road with them, and support the best covering firms with your investment banking business.

Take destiny into your own hands; don’t rely on the sell-side for buy side introductions

Institute your own strategic targeting program with investors. As research spending shrinks, the buy side may be more selective in taking management meetings from firms who they are not paying. This will not be a barrier should the company, or its investor relations agency, reach out directly.

Add more industry perspective to your investor communications

One of the many values of sell-side research is the industry perspective it provides investors. Frequently public companies limit their industry and competitive landscape discussion more than they should as they do not want to publicly mention, or “advertise”, peers and competitors in their material. Now is the time to explore ways that you can more proactively depict where your company fits and excels in the competitive landscape.

Does shrinking sell-side coverage mean you should provide guidance?

No. But it elevates the importance of providing a clear picture of the strategic direction of the business and realistic goals the company can obtain. Projections and specific time frames are not necessary; but long term targets pertaining to such metrics as revenue growth rate and composition, margins, and ROIC provide a good method to align the buy side with how management is thinking about where the business can go.

Mariana Ferreira, Associate - IMS



Wait, ESG (Whatever That Means) Matters for Small Companies Too? The ABCs of ESG and What Small Companies Need to Do

Leaders in financial research are calling ESG a global movement. World renowned companies like Intel and Coca Cola are creating innovative approaches to integrate ESG into their investor relations, and the majority of the leading large public companies are publishing ESG reports. But what are small public companies doing and, more importantly, what should small public companies be doing? As more and more companies adopt sustainable policies and begin disclosing ESG information, this question will only become more imperative.

What is “ESG”?

ESG is the abbreviation for the environmental, social, and governance criteria of a company. These criteria include information about a company’s behavior and non-financials, ranging from topics like sustainability to human rights. Because ESG paints broad strokes over a variety of unrelated factors, it is difficult to have a thorough, meaningful understanding of what ESG is and what it means for a company. It is this lack of specificity and standardization, along with the fact that ESG evaluation is relatively new amongst the investment community, that has independent companies such as the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) working to systematize ESG regulations and reporting.

For public companies, ESG reporting allows for an increase in the quantity and, more importantly, the quality of their disclosure. Improved ESG disclosure provides companies the opportunity to market their products/services as sustainable, and it improves trust and risk reporting for their potential and current investors. Investors use the information that companies do (or don’t) disclose about ESG to judge the sustainability and ethicality of a company, frequently utilizing published reports or stock market ESG indexes. One of the most relevant uses of ESG reporting is to help gauge the long-term risks associated with a company such as foreseeable changes in legislation that may affect business, environmental issues/ regulations, or resource scarcity.

So what?

Those who are skeptical about the reality and importance of ESG may view the movement towards sustainability as a “fad”, or consider it a waste of time and resources. However, research being conducted on ESG criteria indicates the increasing value that it holds in businesses today:

  • Ernst & Young (EY) conducted a survey amongst 320 institutional investors and found that 93% of the responding investors either “agreed” or “strongly agreed” that ESG plays a key role and has long-term, real, and quantifiable impacts.
  • In 2015, 81% of S&P 500 companies published sustainability reports, up from under 20% in 2011 (National Investor Relations Institute).
  • ESG practices can also influence a company's value. As reported by NIRI, 80% of the studies conducted on ESG demonstrated a positive correlation between companies that practiced sustainability and stock performance.
  • Renowned organizations such as the London Stock Exchange, NASDAQ, and EY have published reports on the increasing global interest in nonfinancial information on the part of investment professionals and, more specifically, the focus on ESG factors in the decision making process. In fact, Ernst and Young concluded that ESG has reached an inflection point and that it will have an increasingly important role in the marketplace.

What does this mean for small public companies?

Large companies face the most pressure to adopt ESG policies and reporting strategies, but it remains unclear what is expected of small companies. Since small companies may pose less of an environmental threat, and because they may not have the resources necessary to track and report ESG, there has not been the same push towards ESG awareness and reporting with smaller companies.

For those small companies that are involved in industries such as electricity/gas, automotive, and other environmentally challenging sectors, ESG awareness and reporting will become critical in coming years. However, all companies should begin evaluating ESG and what it means in relation to their industry, business model, investors, consumers, and employees. Taking the initial steps toward sustainable practices and initiating conversations about ESG with stakeholders and company employees now will protect a company from being unprepared as ESG gains traction amongst small cap companies.

In order to provide the resources and support that small companies need to become a part of the ESG movement, organizations have created specialized guides for Small to Medium Enterprises (SMEs). For example, the International Network for Environmental Management (INEM) has created a specialized Tool Kit that provides guidelines for sustainability management in small companies. Additionally, the GRI has created a certified training program to teach ESG reporting practices and skills to small-to-medium enterprises. There are many organizations, manuals, and experts available to help smaller companies dive into ESG.

Where do I start?

  1. Add sustainability discussions to board agenda
  2. Understand what sustainability means for your company: ESG affects different companies and industries in different ways
  3. Engage investor relations, legal, operations, and risk management
  4. Incorporate ESG principles throughout your company; companies with an integrated approach are more successful
  5. Determine which performance indicators are relevant to you and plan a way to measure achievements
  6. Be proactive in communicating your progress on ESG by updating your website and engaging stakeholders through a variety of means
  7. Consider incorporating sustainability disclosures or including ESG criteria on your annual reports

If you are looking for more concrete examples of ESG initiatives, MSCI researched and published a report on the top 10 Small Cap ESG Leaders in the US. You can access the report, and find the top ten list here. Results demonstrate that, despite the potential cost of integrating ESG into their business models, Small Cap ESG Leaders are, on average, performing in line with the rest of the small cap firms.

Mariana Ferreira, Associate - IMS



When Your Stock Goes Down But Your Business Hasn’t Changed; How to Handle Investor Inquiries

Unfortunately, stocks go down -- often faster than they go up. Stocks frequently decrease for reasons tied to performance, but stocks also decrease for reasons unknown or unrelated to a company’s business. Smaller public companies with lower liquidity are particularly susceptible to this volatility.

When a shareholder inquires about a stock being down, here are tips to help management ensure a calm, productive discussion with the investor:

  • “Not based on news from the company”: Reiterate to investors that the decrease in the stock price is “not based on any news from the company”: Investors will appreciate assurance that there is no news or information that they are missing.
  • Align with the investor: Reiterate that you too are a shareholder. This has a way of shifting the tone of the discussion when investors are reassured when their interest, and management’s, align.
  • Focus the conversation on the business whenever possible: Bring the conversation around to what you have most control over — business performance and strategy. “Building value” in the business will contribute to a higher stock price.
  • Don’t over promise: Human nature is to try to appease the other party and this can lead to over promising. Don’t. Keep your dialogue consistent with previous messaging, of course within the guardrails of Regulation FD, and communicate that the Company is focused on its stated strategies and initiatives. The stock will ultimately recover if management executes.
  • Buy stock: Investors sell stocks for many reasons, but they buy stock for only one reason – because they believe that it will be higher in the future. Share purchases by members of management are an irrefutable indicator of confidence in the long term performance of the business.



Yes Virginia, There Are Investors Who Buy Microcap Companies

Who buys microcap companies? More investors than most companies think. It is an amorphous and elusive audience, but one also filled with fundamental investors looking to outperform the averages by capitalizing on an inefficient sector. At IMS, we live and breathe among this group.

At the mid cap and higher market cap range, the discovery process is relatively efficient and the reason for this is pure economics. First, the companies are of a size, and trade enough volume, that larger funds can invest in them and make a difference in their fund performance. Many of these funds manage over $100 million in assets so their holdings are publicly available. Given the transparency of their holdings and style, brokerage firms are easily able to build relationships with them and sufficient capital is under management to pay for ideas. In short, there is an economic ecosystem that drives sponsorship and ownership of mid and large cap companies.

At the microcap level, this economic ecosystem does not exist. There are not enough fees to be made by brokerage firms and the compliance risk is high. Funds that invest in microcap stocks tend to have smaller assets under management, cannot pay for ideas, and hence are not “covered” by the brokerage firms. The holdings and investment styles of many of these funds are not known to most companies given they manage under $100 million and do not file their holdings.

But there is a large universe of funds, mostly small, who invest in the smallest public companies. At IMS, we talk to them every day. We set up calls on their behalf with our management teams, we help them understand the subtleties of a quarter or the reason behind a divestiture. Briefly put, we make sure they have the information they need to make an informed decision about the microcap companies we represent.

There is no publicly available database of these investors. We have gotten to know them over time through our representation of quality smaller companies and by servicing the needs of these investors. We sit at a unique intersection of the public markets — helping these “under the radar” funds understand quality “under the radar” companies.

It is very difficult to quantify the amount of capital dedicated to the microcap universe but there is certainly enough capital out there to make a difference for companies that deserve it. The competition for this capital is fierce, so microcap companies need to provide the most comprehensive information they can; offer consistent accessibility to management; and deliver transparency on all aspects of their business, so that they can generate and sustain investor interest.

John Nesbett, President, IMS



IR Planning When There’s a CEO Change

Quality of management is a key investment consideration for many funds. So when the CEO of a public company changes, it is a big deal. Rumors will swirl, and Wall Street will crave to know what this change means for the strategy of the business. A thoughtful investor relations plan from announcement through the transition will let the new CEO establish credibility, lock in current shareholders and attract new investors.

Some investor relations issues to keep in mind:

Do not rush to put the new CEO in front of investors: As a rule of thumb, investors grant a new CEO three months to get up to speed and formulate his/her strategy. The CEO can interact with investors during the honeymoon period, and frequently will be required to, but he/she is not expected to have all the answers. During this period, the broader investor relations team (typically the CFO and investor relations contacts) is a stabilizing force providing consistency in the day to day management of investor and analyst relationships.

Immediately schedule a trip to meet with investors just after the honeymoon period: Immediately after a new CEO comes on board, establish dates on the calendar for face to face visits with investors following the 3-month “grace” period. With a meeting scheduled on the calendar, investors are more apt to feel comfortable providing the new CEO with the necessary time to digest the business so the meeting can be productive.

Don’t let the new CEO be blindsided: Provide him/her with briefing on shareholders’ historical interaction with the Company, their questions and their concerns. Conduct a mock Q&A around these issues so the CEO is prepared.

Do not try to fit the new CEO into the old box: Every CEO has a unique personality which should be reflected in the Company’s presentation to the Street. Metrics and disclosure protocol should stay largely consistent, but investors will welcome the CEO making stylistic changes to how the company is presented. Go for it.

Establish clear guidelines around CEO accessibility: Building and maintaining constructive relationships with the Street is vital. To that end, a CEO must balance availability to shareholders with driving the business. In a well-meaning effort to please this new constituency, an incoming CEO risks becoming too available -- a difficult precedent to reverse. After the grace period, set aside bi-monthly or monthly blocks of time in which investor calls with the CEO can be scheduled. Calls outside of these blocks can of course be set up on a one-off basis if important issues or questions are presented, but introductory calls or general questions should be handled by the CFO or investor relations team on a day to day basis.

Make the most of this opportunity: A CEO change often signals a positive directional change for a Company and is an excellent opportunity to engage and re-engage with investors and analysts. Transparency and continued clear communications are key to a successful CEO transition.



How to Host a Successful Investor Day

Hosting an Investor Day is a rite of passage for many public companies. As microcap companies approach or cross the threshold to small cap status, the Investor Day is an investor relations tool that management teams may utilize to constructively engage with investors. At IMS, we have hosted several successful Investor Days with our clients. Each Company is different so there is no “set” formula for success, but below are some helpful points to keep in mind:

Avoid creating another stale corporate event; make sure the Investor Day reflects the Company’s personality
Investors attend Investor Days in order to take a deeper dive into a business, including the corporate culture. Be creative in the orchestration of the day so it best reflects the Company’s personality: give the day a theme, orchestrate a thoughtful and engaging facility tour with interaction with a variety of management level employees, and send attendees home with product samples and plenty of swag.

Let the broader management team shine
As Ralph Waldo Emerson wrote: “An institution is the lengthened shadow of one man.” The CEO provides the essential vision and is the central host of the event. That said, a good CEO also puts a strong team in place and the Investor Day is an opportunity for that team to shine. Prepare middle management in terms of the guardrails of Regulation FD, then include them in not only the prepared formal presentation, but also in the Q&A and investor tours.

Get beyond the numbers
An Investor Day should not solely revolve around discussions of gross margin basis points, amortization and debt covenants. The Investor Day offers a unique opportunity for attendees to absorb the product or service that ultimately drives the P&L; that is why they are there. Investors should leave the Investor Day with a passion for the product or service so that the next day they return to the office and tell their co-workers, “Wow, the next generation product that these guys are launching is amazing.” By helping investors become emotional owners of the business, you are encouraging them to think longer term about their investment.

Make it easy for the investor
Logistics matter and reflect on the company:

  • Proactively coordinate lodging and transportation
  • Stay in touch with each of the attendees leading up to the event and be accessible for questions
  • If the event is not at the corporate headquarters, host at a venue that is easy to get to
  • Coordinate the timing of the event so that it respects attendees’ time. Keep the time requirement for the attendee to no more than a day and a half including travel. This will also increase attendance.

Think twice before simulcasting the event
The goal is for investors to personally attend the event. To that end, frequently we will not publicize that the event will be simulcast, but will subsequently post the event on the corporate website and issue a press release about its availability. This also covers the company from a Regulation FD standpoint.



You’ve Created a Stellar Investor Presentation: What Next?

Developing a presentation that provides a compelling investment thesis is an integral part of best-practice investor relations. The presentation is of course essential for conferences and investor meetings, but companies often underutilize it outside of investor interactions. Here are some ideas on how to fully realize the marketing value of the investor presentation:

Issue press release announcing the publication of the new presentation

A corporate presentation is one tool to align investors with how you are thinking about the business and growth strategy. Issue a release, and abstain from a quote or other language suggesting it is more than what it is. The release is a simple announcement to investors to ensure that they are aware of the presentation’s availability. This will expand the breadth of investors who review the presentation and broaden the base of investors who own the stock for reasons aligned with management.

Make Readily Accessible on Corporate Website

The presentation is a key information piece for investors. For example, sell side analysts will sometimes feature trend graphs, financial data, and other information in their research reports that is pulled directly from the company presentation. Some companies are concerned about posting the corporate presentation on their site for competitive reasons, but slides which are competitively sensitive can be removed for the website version.

Send to Investors Met with in the Past

When a corporate presentation is substantively changed or updated, it makes sense to occasionally distribute it to the investor and analyst base of a company. If certain slides may be helpful to current stakeholders, point out new or changed slides in the cover email.

John Nesbett President, IMS



Passion, Narrative, Brevity

As the connected world places more demands on our time and attention, it is a formidable job to deliver an investor presentation that fully engages the audience. Most presentations are not up to the task, with investors in the room quickly hunched over and glued to their phones. At times it seems that the formal group presentation has become the break room for investors to relax and check email between their one-on-one meetings.

To have investors glued to you, not their phones, ensure your presentation includes these three attributes:


Investors do not want hype, but they need to see that the CEO is passionate about the business. Investors will not only pay attention, but will also see more value in a business whose CEO is fired up, because passion drives sales, helps a company through difficult periods, and attracts the best employees.


Humans enjoy and remember stories. We seek out good narrative in books, on TV, in dinner conversation. A crisp, chronological story as to how the company got to where it is today - the founding, the quest to fulfill a need, the successes and failures - can provide powerful context and emotional connection for the investor who can then play a supporting role in the narrative by purchasing shares.


An investor who meets with multiple management teams per week said, “After 20 minutes, I have forgotten why I was interested in the company in the first place.” A first meeting is not the time to educate your audience on the subtleties of the business. Keep it short and leave them with the desire to come back for more.

John Nesbett
President, IMS


What You Need To Know About Seeking Alpha

Seeking Alpha has a large readership and growing influence in today’s online financial landscape. A look into who drives the content behind it and what’s important to know when looking out for your company:


Founded by analyst David Jackson in early 2004, Seeking Alpha is a comprehensive online tool for investment research. The site covers a broad range of stocks, including more than 3,000 small and midcap companies, and provides a wealth of information including access to in-depth opinion articles, summarized news coverage, and performance charts. The site was also a pioneer in providing online access to the conference call transcripts of various companies.

The articles themselves are a major component of Seeking Alpha that boosts its influence with investors. Importantly, articles frequently appear on Yahoo! Finance, a highly trafficked financial information portal for individual and professional investors alike.   According to Seeking Alpha, their readership has the highest percentage of financial professionals of any major finance website. Furthermore, in the past 30 days alone, 52% of Seeking Alpha readers bought stocks, double that of the readership, which is the closest second at 26%. As it self- proclaims, “Seeking Alpha articles frequently move stocks, due to a large and influential readership which includes money managers, business leaders, journalists and bloggers.”


Articles are written by individual authors and submitted to the Seeking Alpha Editorial Team for review before publication. The site has featured over some 9,000 different contributors since its inception.

While articles can be written by anyone, from the first-time individual investor to the most experienced analyst, Seeking Alpha maintains a high standard of quality in the pieces it publishes. The Editorial Team reportedly receives hundreds of submissions a day, of which only a fraction are chosen for publication.


Seeking Alpha editors look to publish articles that are high-quality and considered to be “convincing, well-presented and actionable.”

Editors also look for fundamental analysis evaluating core aspects of a company’s outlook, not simply a technical reiteration of facts. Original topics with fresh perspectives, as well as those featuring compelling titles (that are not overly “bombastic” and outside the scope of the article itself), are also favorably considered. While still eligible for publication, articles pertaining to a stock trading at less than one dollar or one that falls below $100 million in market cap will be subject to greater scrutiny by the editors. 

In addition to this initial vetting by the Editorial Team, Seeking Alpha also requires its contributors to comply with its disclosure standards, meaning they must clearly disclose any material relationship with the companies featured in the article or “parties that stand to gain in any way from the viewpoint they are outlining.” Disclosure information can be found in the disclosure heading beneath the title of each Seeking Alpha piece, along with the author’s assurance that they are not receiving any compensation for the article, except from Seeking Alpha itself.


Writers are rewarded based on popularity and paid according to the amount of page views their articles receive. Seeking Alpha pays its authors 10 dollars for every 1,000 times an article is viewed, which amounts to one cent awarded for each page view.

While seemingly a small amount, for popular authors, this could be a reasonably lucrative channel of generating funds. For example, articles from the top 25 most popular contributors have seen anywhere between 100,000-767,636 page views in the past six months, resulting in thousands of dollars in earnings.  Though authors can be motivated by a wide variety of reasons, it is worth bearing in mind this economic factor as it might affect article content; particularly as a possible underlying motivation for articles that strike a more sensationalistic tone.

In addition to the financial incentive, Seeking Alpha contributors can be driven by the name they build for themselves within the industry by being featured on the site.  One contributor for the site, Cliff Watchal, a broker and director of his own website, stated that, “Seeking Alpha helps draw attention to quality writers and allows them to literally leap into prominence in a matter of weeks.” So, as much as monetary compensation is a key factor, both Seeking Alpha and its contributors do depend on the site’s integrity in high quality publishing for the building of their reputation as well.

THE BOTTOM LINE: If a Seeking Alpha Article Features Your Company

Recommended action for CEOs based on articles that are:


If a particular article reflects the company in a favorable light, is composed with a high degree of quality, and any forward looking statements it contains are in keeping with the company’s current public disclosure, it is acceptable and at times advisable for a company to promote the article and make it more widely available to investors by means of email or positing a link on the ‘News’ section of the company’s website.


If an article is salacious purely for the sake of sensationalism (or perhaps compensation based on page views), it is best not to engage with author directly on the site. It’s not worth getting embroiled in a defensive debate on the comments section of the website.


If there is a piece of information in the article that is simply inaccurate or misleading, it could be worth contacting the Editorial Team of Seeking Alpha to direct them to the article in question for correction or possible removal. This is possible by navigating to the bottom of the article page to the ‘Problem with this article?’ module and clicking on the ‘Please tell us’ link.

Overall, with all the exposure that Seeking Alpha pieces can garner, it is important at the very least to monitor articles that are published to keep abreast of what commentary is being written and disseminated about your company. This can be achieved by visiting Seeking Alpha’s portfolio alert page. From there, the company’s ticker can be entered into the portfolio, the “Get Alerts” button pressed, and “Breaking News” or “Analysis in Real Time” can be checked as appropriate.


Investor Relations Trend Study

IMS recently conducted an investor relations trend study, compiling survey statistics from reports on investor consumption and preference and use of social media for IR. Key findings from the study, along with IMS recommendations, can be found below:

Earnings Conference Calls

  • 71.7% of investors watch/listen to companies’ investor presentations online
  • 40.3% of investors watch/listen to companies’ earnings webcasts when researching new investment opportunities
  • 47.9% of investors read transcripts of companies’ earnings calls
  • 69.6% of investors believe live video webcasts of a company’s CEO would inspire more trust

IMS Recommendation: Earnings webcasts are vital to a best-practice investor relations program. The service is a valuable source of information for existing shareholders, and a key research tool for potential investors. Some larger companies, most notably Yahoo, are beginning to use video for their quarterly earnings announcements.  Given investors’ positive perception of video as an investor relations tool, companies will want to understand the issues and track the success of this as an effective quarterly reporting platform.  It will likely be increasingly adopted over time.

Source: How Investors Consume Investor Relations Content- PR Newswire (Fall 2013)


  • 18% of investors use Twitter/StockTwits for stock research¹
  • 72% of companies use Twitter for investor-related material¹
  • 63% of institutional investors say that social media will become increasingly more important to them²

IMS Recommendation: Since SEC approval of using social media as a platform for investor/material communication is rather recent, investors have been slow to adopt regular use of social media, as demonstrated in the disconnect between investor and company use of Twitter. A majority of 63% of investors, however, believe social media will become increasingly valuable in the future. While Twitter is currently less accessed than other IR communications tools, it may become a useful IR platform in the future.

¹Source: Public Company Use of Social Media for Investor Relations 2013- Web Systems, distributed by IR Magazine (August 2013)

²Source: NIRI Social Media Use in Corporate Investor Communications Study- The National Investor Relations Institute (NIRI) (June 2013)

IR Website

  • 45.6% of investors visited IR websites of potential investment opportunities
  • Less than 1% of investors view stock charts/data on company’s IR website

Source: How Investors Consume Investor Relations Content- PR Newswire (Fall 2013)

IMS Recommendation: The IR section of a company’s website is a crucial platform through which investors research potential investment opportunities. Contrary to popular belief, less than 1% of investors view stock data on a company’s IR website. Therefore, the IR site should focus on providing easy access to valuable resources like press releases, webcasts, and SEC filings. Stock data should be either minimal or entirely excluded from a company’s IR site.


10 Lessons Learned From Interviewing Hundreds of Microcap CEOs

IMS found the below article, authored by Adam Epstein of Third Creak Advisors, LLC. and published at, to be an insightful commentary on factors that influence an investor’s perception of a public company at an introductory meeting.

10 Lessons Learned from Interviewing Hundreds of MicroCap CEOs

Adam advises small-cap boards through his firm, Third Creek Advisors, LLC, is a National Association of Corporate Directors Board Leadership Fellow, and the author of The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies, (McGraw Hill, 2012).  He was co-founder and principal of Enable Capital Management, LLC.

IMS Ownership Benchmarking Study Finds Largest Climb in Institutional Ownership Occurs Between $50 and $300 Million Market Cap

IMS recently conducted a benchmarking study which evaluates the percentage of institutional ownership across various market cap levels, ranging from $25 million to $2 billion.

The below graphs detail the results of the study. 

This study demonstrates a basic benchmark of typical percentages of institutional ownership at various public company market cap levels.  The largest jump in percentage ownership occurs between $50 million and $300 million, where the average percentage of managed funds owning a stock climbs from 26.6% to 57.9%.  From there, the percentage of managed funds levels off.  The study also shows a large climb in the percentage of index ownership in this same market range as companies are added to indexes such as the Russell 2000 and funds looking to mirror or stay close to the index performance add these stocks to their holdings.

During this phase of a company’s growth – from $50 to $300 million market cap – a critical foundation is built in a company’s shareholder base.  During this period, as professional managed funds approach and move beyond 50% of the ownership base, it is essential that a company properly communicate developments in their business to align shareholders with management and establish sound corporate governance.  If handled properly, a company’s cost of capital can be significantly reduced during this period.

Each market cap sample group in the study was comprised of 15 companies in the Basic Materials, Consumer Goods, Industrial Goods, Services, and Technology sectors. The study is based on data provided by ThomsonOne.

John Nesbett
President, IMS

SEC Ruling About Social Media and its Practical Implications

Yesterday, the SEC said that posting on sites such as Facebook and Twitter is just as good as news releases and company websites as long as the companies have told investors which outlets they intend to use.

What are the practical implications of this ruling?

-  This does not make wire services obsolete, at least not for the time being.  Investors are too conditioned to using various portals to follow the news of their companies.  They also use these portals to pull up historical news.  Wire services such as Businesswire, PR Newswire and Marketwire are an efficient method to ensure that all of the portals —  Yahoo Finance, Bloomberg, Google, Marketwatch, etc. — receive news and archive it in the portals’ historical news feed.  Unquestionably there is behavioral change afoot as to how investors receive news, but until we get more certainty that investors are comfortable with new avenues for material disclosures, we recommend that you continue to distribute material news via a wire service.

-  A public company cannot begin using a form of social media, such as Twitter or Facebook, as their primary forum for announcing material announcements until they have first advised investors of this change.  Most likely, this would be in the form of a traditional press release across the wire announcing the change, but we are getting more clarity on this.

-  As we all know, after a news release is made public it should always quickly be posted on the corporate website and, if appropriate, distributed via various social media channels such as Twitter, Facebook and LinkedIn.  Keep in mind that this ruling by the SEC only pertains to material announcements.  Non material trade announcements can be distributed via these channels at any time.  The grey area here is the issue of “materiality.”  One metric is whether a piece of news, on a standalone basis, could move the stock.  It is always best to be conservative when evaluating materiality.

-  It is important to note that while Twitter, Facebook and LinkedIn are not core channels for material investor information, they are increasingly important for a company’s broader corporate communications effort.

To read the full article from the Wall Street Journal, click here.

John Nesbett
President, IMS

Warren Buffet’s Wide Moat Principles: Applying Them to Your Investor Relations Messaging

Warren Buffet has stated that he seeks “economic castles protected by unbreachable ‘moats.’”  The principles of Buffet’s thinking increasingly guide many investors, both big and small.  Investors look for “good businesses” that are inherently good stocks.  Morningstar has even created an Index applying the five principles of Buffet’s “wide moat” theory.  Not surprisingly, it has significantly outperformed its comparable indexes.

Rarely does a company, particularly a small public company, align with all of the five wide moat principles.  But inevitably some of them apply to any decent business, and from an investor relations standpoint, these attributes must be clear to investors:

The network effect: when a service becomes increasingly more valuable as more customers begin using it.
This is the most difficult of the principles to get one’s arms around.  Essentially, it means that each new customer adds to the value of the business.  Think media: each new customer means that more can be charged in advertising.  So while it certainly does not apply to every company specifically, it speaks to the incremental value of new customers.  Public companies should communicate new customer wins when possible, but should also put the new customer win in broader context.  For example, are new customer wins in a sector begetting a faster new customer win rate?  Is the new customer in a new industry sector that adds expertise and capabilities?

A situation when consumers have no incentive to embrace the competition.
This is frequently the territory of very large public companies, but aspects of this principle can apply to smaller companies that have a distinct competitive advantage over competition.  Many companies won’t acknowledge or directly mention competition.  This may be a lost opportunity.  Including a capabilities table versus competition in your corporate slide deck can be a very effective tool for helping investors appreciate your dominant capabilities in a sector.  A company can also disclose customer retention metrics such as length of customer relationship and low churn, as well as the unattractive switching costs in the business.

A company possesses a virtual monopoly or control of a limited market.
Small to medium sized companies can, at times, have staggering and defensible market shares in very niche markets.  Take this into account when presenting market data.Demonstrate not only your small share of the overall market, but your bigger share in the niche markets that you focus on.  

Registered brands, patents and licenses that give a company steady cash flow.
Brands are of considerable value to investors.  Communicate the value of your growing brand both through anecdotal stories and consumer survey metrics.  This principle  also touches upon a company’s ability to “make money while they sleep.”  Licensing revenue can be high margin incremental revenue and should be broken out in a separate line item and clearly articulated.

A pricing advantage where you can produce a better quality product at a lower cost than the competition.
Good companies are constantly improving their manufacturing process.  Speak to your manufacturing efficiencies.  Host site visits for investors.  Share metrics demonstrating manufacturing improvements and quality.  Investors need to know that the company is able to produce excellent products at a good price; otherwise, the returns on the business will never be attractive.

John Nesbett
President, IMS