How the economics of corporate access are changing
When Mifid II came into effect at the start of 2018, IR teams noticed little immediate impact on corporate access. That situation has gradually changed over the last 12 months. More and more people are reporting patchy attendance at conferences and trouble securing meetings at roadshows. The changes vary widely between firms, however, with region, market cap and individual circumstances all playing a role.
‘We have definitely seen an impact from Mifid II,’ says Gunhild Grieve, head of IR at German power company RWE. ‘Investors go to events where they have relationships with the sell side, but not to others. It has also become more difficult to fill roadshow schedules in some places, especially Tier 2 locations. If you go with a broker, you might have to supplement it with meetings you set up yourself.’
Under Mifid II, investors cannot pay for corporate access or research out of trading commissions. The two services must also be broken out and priced separately. Most firms have chosen to absorb the costs into their balance sheet and are now carefully scrutinizing which meetings and research services they accept.
‘Historically, those services have just been there, and we’ve not needed to articulate them, either from a regulatory perspective or for our CFO,’ says Anne Scott, investment services manager at Kames, the Edinburgh-based asset manager. ‘But now it’s a visible budget. We’ve got to be able to articulate value to our executives and, ultimately, our customers.’
The changing economics of corporate access are forcing investment banks to focus on different types of services, says Sanford Bragg, principal at Integrity Research Associates, a research and data firm that focuses on the sell side. ‘The broader trend among banks – which is true everywhere, but perhaps more pronounced in Europe – is to focus less on lower-value corporate access and more on higher-value events, such as reverse roadshows, trips, special lunches: more intimate gatherings. Consequently, conferences – being on the less valued side of this scale – have suffered.’
The shift in strategy can be traced back to 2014, when the UK’s financial regulator banned commission payments for corporate access, says Bragg. Mifid II then broadened the impact by extending the rules from the UK to Europe.
One of the main challenges for investors under the new regulation has been to work out a price for corporate access. ‘There are huge variations in rates that are being applied, and everyone has their own view,’ says Michael Hufton, founder of corporate access platform ingage. ‘Some apply a universal rate for every meeting. Others apply quite a lot of granularity: some companies will pay different amounts for one-on-one versus group meetings, inbound versus outbound requests, or for IR meetings versus senior management.’
While there have been stories of very high and very low figures, the cost of a meeting today normally falls between $150 and $500, according to various industry reports.
‘Quite a lot of people are settling at $200-$250 a meeting because, ultimately, all these fund managers want is to be in the middle of the pack,’ says Hufton. ‘They don’t want to be at the bottom end, and then feel at risk, and they don’t want to be at the top end, and feel like they’re being fleeced.’
In the UK, companies have been shielded from some of the impact by corporate broking relationships. When a broker is acting on behalf of a company, it is easier for the investor to accept the meeting without charge because there is less risk of the service appearing to be an inducement.
‘I think that naturally leads to more power for corporate brokers in terms of having greater time control over organizing roadshows for their corporate-broking clients,’ says Hufton.
Mifid II effects have not been confined to Europe. Firms in other markets are reporting similar changes, although on a lesser scale. Some global asset managers have adopted unbundling of research and corporate access across all their operations, making them more selective about which meetings they take worldwide.
A survey conducted by IHS Markit at NIRI’s annual conference this year offered a snapshot of conditions in the US: of the 50+ IR professionals polled, the vast majority reported some impact from Mifid II to their IR outreach, but less than 10 percent labeled the effects as ‘significant’.
‘The one place I have seen a direct impact is when I work on non-deal roadshows with a sell-side analyst – which is how I do all my non-deal roadshows,’ says Marisa Jacobs, global head of IR at US-based footwear company Crocs.
‘I am finding that since Mifid II came into effect, some accounts that I would like to see are refusing to take the meeting because the sponsoring sell-side firm isn’t one they now have a paying relationship with. And I am only doing meetings in the US and Canada, so I don’t have a perspective on the changes in Europe and Asia.
‘If I still want to meet with those accounts, I have to do it outside of the scope of the sell-side hosted non-deal roadshow. That makes it much more difficult logistically as I then have to restructure those events to build in time for unhosted meetings.’
For small-cap companies, any drop-off in broker support may be harder to mitigate. ‘Lesser-known, smaller companies have a huge reliance on sell-side relationships, and especially conferences,’ says Ari Davies, global head of corporate analytics at IHS Markit. ‘They are certainly the ones feeling most squeezed by that traditional framework shifting a bit.’
With the broker model for corporate access in flux, a range of firms – such as IR consultants, independent research providers and technology platforms – are seeing an opportunity to step in and offer support.
One of the newest entrants is InterAxS, a specialist content provider set up by Lucy Richardson and Cathy Norbury, who previously led the European corporate access team at Credit Suisse. The organization will run events Norbury and Richardson say are underserved by the current sell-side model, such as roundtable discussions on upcoming IPOs, and will also offer outsourced corporate access services for banks.
Stock exchanges are also taking action: the Moscow Stock Exchange, for example, recently signed a deal with Closir, a platform specializing in providing global investor access for emerging and frontier market firms.
Michael Chojnacki, founder of Closir, points out that changes to the corporate access landscape were not started by Mifid II; they were only accelerated by it.
‘If you just put aside the regulations, you will realize that the cash equity space has been going through quite a lot of changes over the last decade or so,’ he says. ‘Over that time, the revenue model for the sell side has basically been structurally declining – despite the fact that new markets have been opening up and global assets under management rising.’
‘More than ever, companies need to be thoughtful about how they spend their time with investors,’ says Mark Pellegrino, CEO of CorpAxe and a veteran of corporate access roles on both the buy side and sell side. ‘The changing dynamics on the sell side mean that what worked last year, may not work this year. It’s up to IR teams to maximize their management return on time and ensure they are getting in front of the right investors.’
For Grieve, it’s an exciting – albeit challenging – time to be in investor relations. ‘There are further changes coming our way, with the Shareholder Directive and new responsibilities around corporate governance,’ she observes. ‘So investor relations is becoming more important within companies. There are more tasks we have to handle.’