Consider a mix of quantitative and qualitative factors
Measuring the success of the IR program is a complicated subject with a variety of different views – and it’s no different when tracking your targeting goals. Some companies use the conversion rate of targets to shareholders as a way to measure success, but others point out that you have very little control over an investor’s buy and sell decisions. Meanwhile, monitoring activity, such as the number of meetings with prospective holders, is useful to record but may not convey whether the investment of time was worthwhile.
Many companies look at qualitative metrics such as meeting quality and investor feedback to gauge the IR team’s work. If a company has specific goals, however, like boosting institutional ownership or overseas investment, it’s hard to completely avoid those areas when judging the effectiveness of the targeting program.
If you’ve had a ton of unproductive, ineffective conversations, it might be time to go back to the drawing board and rethink the people you’re sitting down with
To monitor the progress of Altus Group’s targeting goals, Camilla Bartosiewicz, chief communications officer at the firm, says the company looked at areas like proportion of institutional ownership, geographic diversification and the investment style of new owners – the aim was for more growth and Garp funds. The company also monitored return on investment by tracking whether investor targets eventually became shareholders. Other IR tools, such as perception studies that assessed whether the IR message was landing, helped round out the picture.
‘We were on a journey to get Altus rerated as a tech company,’ explains Bartosiewicz. ‘And we achieved that. By one measure, if you look at our historic enterprise value to Ebitda multiple, there is a hugely impressive trajectory. Investor targeting was one of the most impactful initiatives in that endeavor, in addition to putting up strong operational performance and evolving our disclosure.’
Camilla Bartosiewicz, Altus Group
‘Perennial challenge’ Measuring the success of IR is a ‘perennial challenge,’ says Steve Adams of Clermont Partners, who has seen it attempted in many different ways. ‘I think the wrong way is purely quantitative: to say we should have X number of conversations with X number of buy-side analysts or portfolio managers. That means you are going for quantity over quality.’
While admitting they are subjective in nature, Adams suggests two measures of targeting work. The first is positive use of management time: did you include senior management in the meetings with the highest-quality investors for your business? The second is quality of conversations: was the analyst or portfolio manager prepared? Did he/she ask relevant, thoughtful questions? Did it feel like there was the opportunity for continued dialogue?
Adams suggests taking these questions, creating a scoring system and giving a mark to each meeting. ‘Did we average 2.2 or 4.5 out of 5?’ he asks. ‘This requires IROs to be completely honest with themselves. If you’ve had a ton of unproductive, ineffective conversations, it might be time to go back to the drawing board and rethink the people you’re sitting down with.’
While many IR teams steer clear of focusing on conversion rates or the share price to measure the success of targeting, Rodney Nelson, head of IR at Qualtrics, argues that you should consider these areas, with certain caveats. ‘I think there are lots of ways you can quantitatively measure success and failure,’ he says. ‘Whether people want to admit it or not, it comes back to: did the prospect buy, sell or hold? And is the multiple we are being assigned by the market above or below where our peers are?’
Bartosiewicz notes that, based on their profile and trajectory, companies will receive different levels of inbound interest, which can affect the likelihood of success with targeting programs. ‘Companies may have aspirations to broaden their geographical footprint or institutional base, but there may be limitations – for example, market cap or liquidity,’ she says. IR teams should bear these potential barriers in mind when setting expectations with management, she adds.
There will always be debate about the best way to measure the success of IR activity. But what’s not in doubt is the value of strategic targeting, not only to your IR program but also to the company’s long-term business goals.
By taking a thoughtful approach to targeting, IR teams can help their company execute strategic changes, enter new markets, highlight sustainability progress, and much more. ‘It’s about finding a shareholder base that comes along for the journey,’ concludes Bartosiewicz.
