Investor relations (IR) consulting is an essential aspect of any business that wants to maintain good relationships with its investors, promote transparency and accountability, and ensure that its stock price reflects its true value. However, not all IR consulting firms are created equal, and it's important to understand the different types of firms available and which one is right for your business. In this article, we'll explore the various types of IR consulting firms, their costs, and how to evaluate their success.
What is Investor Relations Consulting?
Investor relations consulting is a professional service that helps businesses communicate with their investors and financial stakeholders. These services include developing communication strategies, preparing and editing financial reports and presentations, helping to set guidance, preparing management for Q&A, organizing investor meetings, and managing relationships with analysts and the media.
IR consulting firms help businesses to create and execute effective IR programs to enhance their reputations and build strong relationships with their investors, which can lead to increased investor confidence, better market valuation multiples, and ultimately, access to capital as needed.
The Different Types of IR Consulting Firms
There are two main types of IR consulting firms: strategic IR consulting firms and IR outsourcing firms.
Strategic IR Consulting Firms
Strategic IR consulting firms, like Resurge, are focused on developing and executing long-term IR strategies to help companies achieve their financial goals. These firms typically work with companies that have strong in-house IR teams but need additional support to enhance their communication and outreach efforts.
Strategic IR firms provide a range of services, including changing how the company’s story is told to the Street, adapting key performance indicators (KPIs) to help tell this story, preparing management for the anticipated questions they will likely get from investors, scripting earnings calls, crafting investor days, performing financial analysis of quarterly reports, helping management set forward-looking guidance, investor perception studies, and activism defense. They work closely with companies' management teams and boards of directors to develop or enhance existing IR strategies that align with the company's goals and values.
IR Outsourcing Firms
IR outsourcing firms, like The Blueshirt Group, provide comprehensive IR services to companies that don't have in-house IR departments or need to supplement their existing teams with a sophisticated IR strategy. These firms offer a range of services, including investor communications, IR website management, press release writing, shareholder identification, and setting and arranging meetings.
IR outsourcing firms are ideal for companies that are just starting their IR programs, are between in-house IR professionals, or that have limited resources to devote to IR activities. These firms can help companies establish a professional IR function and provide ongoing support to ensure that companies comply with regulatory requirements and maintain effective communication with their investors.
Which Kind of IR Consulting Firm is Right for You?
Choosing the right IR consulting firm depends on the unique needs of your business. If you have an inexperienced or non-existent IR department, an IR outsourcing firm may be the best option for you. The purpose of these firms is to act as if they were your existing IR department.
On the other hand, if you have a strong IR department but your stock doesn't properly reflect its true value, a strategic IR firm may be the right choice. The purpose of these firms is to diagnose what’s causing your company’s valuation to lag and to devise and implement IR-based strategies to help remedy this.
What do IR Consulting Firms Cost?
The cost of IR consulting services varies depending on the scope of services required, the size of the company, and the reputation and experience of the IR consulting firm.
IR outsourcing firms typically charge a retainer fee plus additional fees for specific services, such as investor communications or crisis management. The retainer fee generally ranges from $5,000 to $20,000 per month and often scales with the market capitalization of the company.
Strategic IR firms are generally more expensive than IR outsourcing firms because of the specialized experience that their professionals tend to have. Good strategic IR firms may charge a retainer fee plus performance-based fees, which are tied to specific financial goals. The retainer fee can range from $20,000 to $50,000 per month, while performance-based fees are typically tied to some type of valuation-enhancement calculation and scale as the company’s valuation improves.
It's important to note that while IR consulting services can be costly, they are a valuable investment for businesses that want to maintain good relationships with their investors and ensure that their stock price reflects their true value. In fact, the cost of strategic IR firms often causes some level of “sticker-shock,” but once management teams understand the value-enhancing services these companies provide, the return-on-investment calculation can become quite favorable. Companies that are successful with their strategic IR consulting firms can achieve market capitalization improvements that are orders of magnitude greater than the fees they paid to the consultant.
How to Evaluate the Success of an IR Consulting Firm
Evaluating the success of an IR consulting firm can be challenging, but there are several metrics that businesses can use to assess the effectiveness of their IR programs.
For IR outsourcing companies, these can include:
· Number of meetings booked
· Uptime of the company’s IR section of the website
· Number of hours saved for the company’s C-suite fielding investor questions and preparing documents
For strategic investor relations firms, these can include:
· Relative valuation improvement
· Feedback from investors
· Management’s feeling of preparedness for investor events
IR Consulting Final Thoughts
Investor relations consulting is a critical aspect of any business that wants to maintain good relationships with its investors, promote transparency and accountability, and ensure that its stock price reflects its true value. Choosing the right IR consulting firm depends on the unique needs of your business, and it's important to understand the different types of firms available, their costs, and how to evaluate their success.
Investing in IR consulting services can be costly, but it's a valuable investment that can lead to increased investor confidence, better market valuation, and access to capital. By choosing the right IR consulting firm and evaluating its success based on key metrics, businesses can build strong relationships with their investors and achieve their financial goals.
