Investor Relations insights
“IR can help develop the reporting framework and manage relations with the bondholders”
The growing role of IR for private companies
Geoff Callow explains why private companies may be missing out, by trying to manage investor relations activities without a dedicated IRO.
- Without a dedicated IR professional, responsibilities often fall on the CFO.
- An IRO can help develop a consistent set of KPIs, available to all shareholders.
- Careful and consistent IR messaging can be critical for managing an IPO and subsequent secondary market trading.
Investor relations is mostly discussed in the context of public companies communicating with their shareholders. However, there are also a growing number of private companies looking to develop a more sophisticated approach to investor engagement.
Private companies have a myriad of ownership structures, with stakeholders including private equity, partnership structures, extended family or institutions. Additionally, the advent of crowd funding has led to a growth in the number of retail investors accessing opportunities to invest in private companies. These investors all need to be educated on company performance. Similar to listed companies, these stakeholders should have enough information to be able to ascertain a fair and accurate valuation of the company.
Without a dedicated IR resource, the co-ordination of the IR activity will often fall to the CFO or a senior member of the finance team. Whilst highly competent in their chosen profession, these individuals often lack the specialist knowledge required to develop a best-in-class IR programme.
A clear benefit of professionalising IR is that a company can develop a consistent set of financial KPIs, available for all shareholders. By publishing these on the corporate website, a company is demonstrating that it is professional and transparent. The consistency and accuracy of information will also help shareholders make fair and accurate valuations. This is particularly important in the event that management decide to engage in M&A activity, seek additional equity injections or look to sell the business. In addition, this would also help manage expectations should the company decide to go down the IPO route. Indeed, careful and consistent IR messaging can be critical for managing an IPO and subsequent secondary market trading.
Private companies may also have bondholders, whereby the company is obliged to report performance on a regular basis. IR can help develop the reporting framework and manage relations with the bondholders.
An IR programme for a private company is not governed by public market regulations and therefore companies can provide a more detailed and increased level of forward projections, compared to a public company. It is worth thinking about these disclosure levels carefully though, especially if the company is considering an IPO, as it will need to adjust its disclosure to fit with public market requirements.
As with any form of communications, good IR is about bringing information back into the business and providing shareholders with an opportunity to feed back to management. This is critical, as it reduces the risk of shareholders and management not being aligned on the strategy.
In summary, with all of the communications channels open to companies today, shareholders have higher expectations in terms of communication with management. Interestingly, the appropriate channels for private companies are very similar to their publicly listed peers. At Equitory, we work with a number of private companies and IR programmes include some or all of the following:
- publishing results and preparing a presentation for shareholders;
- producing an annual report;
- holding meetings with key shareholders;
- possibly holding an annual general meeting; and
- professionalising the investor section of the website to contain FAQs, video content etc.
Ultimately, whether public or private, keeping stakeholders informed and up to date can only be beneficial for a company, as it builds better, longer-term relationships with its investors.