Introduction
Investor relations consultants can provide a range of services that improve financial communication, enhance shareholder value, and manage crises effectively. However, choosing the right consultant can be a daunting task. With so many firms offering similar services, how do you know which one is the right fit for your company? In this article, we will explore five key questions to ask when hiring investor relations consultants, to help you make an informed decision.
1: What is Your Experience?
Experience is a critical factor to consider when choosing an investor relations consultant. It's essential to partner with a firm that has a deep understanding of the financial markets, investor expectations, and regulatory requirements. When interviewing potential consultants, ask about their experience in the industry, the types of clients they have worked with, and the results they have achieved.
Taking this one step further, ask your IR consultant what experience they have buying and selling stocks or in professionally analyzing companies. Often, companies want to hire IR consultants who have either been professional investors in their prior career or who have been publishing sell-side analysts. This is because these types of analysts-turn-consultants tend to understand the mind of investors better than consultants who have been in investor relations their entire careers.
2: What Services Do You Offer?
Investor relations consultants offer a range of services designed to help public companies achieve their goals. It's essential to choose a firm that offers services that are tailored to your needs. Are your needs more along the lines of IR outsourcing? If so, ask your potential consultant how much time they have available, who will be servicing your account, if they know the analysts and investors in your sector, and if they have experience in your industry.
On the other hand, if your needs are more in line with the services a strategic IR consultant provides, ask them what issues they see with your company and how they would solve them. Does their answer suggest that they have either done the work analyzing your company or that they have experience in your sector (or with similar stocks) that allows them to quickly and effectively diagnose your issues?
3: What is Your Approach?
Every investor relations consultant has a unique approach to their work. It's essential to choose a consultant whose approach aligns with your company's ability to service that approach. Ask potential consultants what they would do first upon landing the engagement. How will they figure out what the issues are and how will they collaborate with your team to elicit the change that’s needed to drive better shareholder engagement. If you have strong personalities at your company (e.g. founder CEO or first-time public company-facing management), does the consultant have experience dealing with and motivating these types of executives? Of course it’s ok to ask the consultant for representative examples of work they have done that’s similar to your project.
4: What Are Your Fees?
Investor relations consulting fees can vary widely depending on the reputation of the firm and the services provided, but make no mistake, this is an expensive endeavor for any company to undertake. It's essential to have a clear understanding of the fees and how they are structured. Ask potential consultants about their fee structure, including retainer fees, success fees, and any additional charges. Choose a consultant whose fees are transparent and where the return-on-investment is clear. It’s worth noting that most of the top investor relations consultants – particularly the strategic IR consulting firms – tend to book 12-month or longer engagements with their clients, since results often take time to materialize and these consultants can have incentive or success fees tied the company’s long-term performance.
5: Can You Provide References?
Before hiring an investor relations consultant, it's essential to check their references. Ask potential consultants to provide references from past clients. Although many IR consulting firms have non-disclosure agreements with their clients and so they don’t openly advertise their client lists, a top investor relations consultant will be able to provide you with references whom you can ask about their experience working with the consultant, the results achieved, and any challenges faced. Choose a consultant that has a track record of delivering results and positive client feedback, as this is the best indicator of the success you will have with them.
Questions to ask your IR consultant – final thoughts
Partnering with the right investor relations consultant can be a game-changer for public companies looking to improve financial communication, enhance shareholder value, and manage any crises that arise effectively. By asking the right questions, you can make an informed decision and choose a consultant that is the right fit for your company. Consider experience, services offered, approach, fees, and references when making your decision. With the right consultant by your side, you can get the valuation you deserve.
Frequently Asked Questions
Q: What is the role of an investor relations consultant?
A: An investor relations consultant is a professional who specializes in advising public companies on how to effectively communicate with investors. They offer a range of services designed to improve financial communication, target the right investors, and enhance overall shareholder value.
Q: How can investor relations consultants help with crisis management or when activists get involved?
A: In the event of a crisis or unexpected event like when activists agitate for change, investor relations consultants can help public companies manage the situation and communicate effectively with investors. This includes first, understanding what the crisis is or what the activists want, analyzing the financials to see what is possible, and then developing crisis communication strategies, providing guidance on how to respond to inquiries, and ensuring that accurate and timely information is communicated to investors.
Q: How do investor relations consultants charge for their services?
A: Investor relations consulting fees can vary widely depending on the firm and the services provided. Fees for good consultants tend to come in the form of monthly retainers which can range from $5,000 for a low-end IR outsourcing engagement to upwards of $30-50,000 per month for more strategic IR engagements. The top IR consulting firms often charge valuation-based success fees and have expense reimbursement policies. It's essential to have a clear understanding of the fee structure and any additional charges before hiring a consultant.
Q: What is the importance of choosing the right investor relations consultant?
A: Choosing the right investor relations consultant is critical for public companies looking to improve financial communication, enhance shareholder value, and manage crises effectively. A good consultant can provide expertise, industry knowledge, and a collaborative approach to achieve the company's goals. On the other hand, a poor consultant can waste time and money, and potentially harm the company's reputation.
Q: How can I check the references of potential investor relations consultants?
A: To check the references of potential investor relations consultants, ask the consultant to provide references from past clients. Contact these references to ask about their experience working with the consultant, the results achieved, and any challenges faced. It's important to choose a consultant that has a track record of delivering results and positive client feedback.
Q: How can I determine which services offered by an investor relations consultant are relevant to my company?
A: When choosing an investor relations consultant, it's important to consider which services are most relevant to your company's goals and needs. For example, if you are looking to outsource your IR function because you are in between in-house IR people or don’t want to hire an IR person, then hiring an IR outsourcing firm like The Blueshirt Group makes the most sense. On the other hand, if you’re looking to get the valuation your company deserves and see opportunities to improve your existing IR function or the way you communicate with the Street, then hiring a strategic IR firm like Resurge makes more sense.
Q: How can I ensure that the investor relations consultant's approach aligns with my company's values and goals?
A: When interviewing potential investor relations consultants, ask about their approach to working with clients, their communication style, and how they manage projects. Choose a consultant that has a collaborative and proactive approach to their work, and whose values (and time) align with those of your company. A good fit can help ensure a successful partnership and achieve your goals.
Q: What is the best way to conduct an interview with a potential investor relations consultant?
A: When conducting an interview with a potential investor relations consultant, come prepared with a list of questions related to experience, services offered, approach, fees, and references. See if they have taken the time to review your company’s situation and if they have any observations right away that could improve the situation. Consider the consultant's communication style and approach to the interview process, as this can be an indicator of how they will work with your company.
Q: What is the timeline for engaging an investor relations consultant?
A: The timeline for engaging an investor relations consultant can vary depending on the company's needs and the consultant's availability. It's important to begin the search process early to ensure that there is sufficient time to choose the right consultant and implement their services effectively. It's also important to consider any upcoming events or announcements that may require the consultant's support. The top investor relations consulting firms are often booked and need some time to properly get integrated into your company to understand it before they can begin adding value. Hiring an IR consulting firm 2-3 months before your first public appearance (e.g., earnings release) that will use the IR consultant is generally sufficient. Anything closer in time will result in rushing and won’t likely deliver the optimal result.
Q: How can investor relations consulting benefit public companies?
A: Investor relations consulting can benefit public companies in several ways, including improving financial communication, enhancing shareholder value, targeting the right investors, managing crises effectively, and making better strategic decisions. By partnering with an experienced and knowledgeable consultant, public companies can leverage their expertise and industry knowledge to achieve their goals and succeed in the competitive world of public companies.
Q: Can investor relations consultants work with small public companies?
A: Yes, investor relations consultants can work with small public companies. However, it's important to choose a consultant that has experience working with small companies and understands the unique challenges they face. The consultant should also offer services that are tailored to the company's needs and budget. Companies with market capitalizations below $500 million tend to opt for the IR outsourcing types of IR consultants whereas companies larger than $750 million tend to opt more for the strategic IR types of firms.
Q: What is the difference between investor relations consulting and public relations?
A: Investor relations consulting and public relations are related but distinct fields. Public relations focuses on building and maintaining a positive image and reputation for a company with the public, media, and other stakeholders. Investor relations, on the other hand, focuses specifically on communicating with investors and managing relationships with them. While there is some overlap between the two fields, investor relations consulting is more focused on financial communication and shareholder value than public relations.
