Investor Relations insights
Access to funding: why your equity story matters
Equitory is the largest dedicated investor communications consultancy in the UK. Its founder explains why investor relations is becoming more important for companies, and what makes a good equity story.
Clara Melia worked in internal investor relations for companies such as ITV before spotting a gap in the market. Her company, Equitory, is the largest dedicated investor communications consultancy in the UK, working with businesses of all sizes, from private equity backed companies, those going through an IPO to FTSE 100 companies.
Investor relations often gets overlooked when companies prepare for a listing, but it’s actually a critical element to get right, with significant consequences if it fails. “That first 12 months of being a public company is where you set your reputation as a management team and gives a sense of how you’re going to interact with the city,” says Melia. “If you fail in that, particularly in that first 12 months, it can be catastrophic from a valuation perspective.”
Investor relations (IR) is a specialised form of communication that accountants are particularly suited to – Melia is ACA qualified and employs a number of chartered accountants on her team. It’s all about communicating company information to allow investors to make an informed investment decision.
IR professionals tell a story, based on financial data, with an understanding of what resonates with an investor audience. Companies need to stand out from the crowd for the right reasons.
“There are lots of red flags from a communication perspective,” says Melia. “Companies that succeed at investor relations are able to tell a clear story. They communicate consistently and regularly with that investor audience.”
There are three crucial financial areas that make up a good equity story. First, how the company generates revenue; its customer proposition, competitive advantage and market opportunity. Second, the machinery to turn revenue into returns; the cost position, operational gearing, cashflow and tax efficiency. Thirdly, how it manages long-term returns and growth.
Outside of these three critical areas are non-financial disclosures such as sustainability targets and community work, which are of increasing importance. Finally, tone of voice and communicating the culture of the company. This is easy to lose during the process as advisors, such as bankers and lawyers, get involved.
“Investors will want that balance between understanding where you’re going to go in the long term, and what the company is doing in the next 12 months.”
For companies going through an IPO process, IR often falls down either through a lack of IR knowledge or through strained capacity. IR specialists, for example, know how to tailor the equity story to different investor audiences, which will require different levels of detail and communication approaches. Generalist retail investors, for example, may require a more straightforward message and rely more on information on a company’s website than institutional investors.
When it comes to capacity, it’s often when senior management, particularly founder-directors, want to be involved in every investor conversation. “Going through an IPO is a very distracting, time-consuming process, and management also has to keep running the business,” Melia says. This is where an IR professional can help management better allocate their time by determining which investors should be prioritised for meetings. Critical investors absolutely should get an hour of CEO or CFO time to communicate in a one-to-one environment, but smaller investors are often happy with an in-house IR professional or a consultant to speak on behalf of the management team.”
A company’s long-term equity story should remain fairly consistent with every set of results, with the financials, KPIs and operational updates providing the medium-term markers of business performance. You want to create a familiar story as many investors will only revisit a company from time to time.
“A lot of the framework around the investor communication piece is pretty consistent from a small cap company all the way up to the large cap companies,” Melia explains. “If you are considering going through an IPO or becoming a public company two to three years down the line, start to build that framework of communication now. You can do that pretty much in line with how a public company reports. It’s really helpful to articulate your equity story before you start getting involved in the transactional side of the IPO.”
This should also inform all external and internal communications, which can attract potential investors, including customers and employees. Consistent messaging on your website and internal communications helps to lay the groundwork of your story.
“One of our clients produced public company-style annual reports for five years before they became a public company. That put them in a really strong position when they listed because producing these core materials requires a lot of thought and resources. If you already have these reporting structures in place internally, it’s one less thing to have to worry about when you’re presenting your first set of public company financials. It also provides a repository of information on the business for investors to review as part of the investment decision making process. ”
IR is only going to become more important to companies. Melia is confident of the opportunities not only for her company, but for budding IR professionals as well. “We’re developing an IR qualification like ACA, which combines practical learning in IR best practice and theoretical knowledge. That should hopefully bring a new generation of IR professionals into the market, which supports the market as IR becomes more important.”
View the article on the ICAEW website here.