Investor relations (IR) is an essential function for public companies. It involves communicating with investors, analysts, and the financial media to ensure that they have accurate and timely information about the company's operations, performance, and prospects. Good IR is critical for maintaining or increasing the company's valuation and ensuring that it has access to capital on favorable terms.
However, even companies with high-performing IR teams may struggle to maintain or increase their valuation. This is where strategic investor relations consulting firms can help. In this article, we will discuss the ways in which strategic investor relations consulting firms can benefit public companies.
Understanding Strategic Investor Relations Consulting
Strategic investor relations consulting is a specialized form of consulting that focuses on helping public companies optimize their IR strategy and execution. These firms typically have experienced professionals who have worked in the finance industry as investors or sell-side analysts. They leverage their expertise to help companies develop and implement effective IR programs that resonate with investors and analysts. Generally, their experience as investors or sell-side analysts sets them apart from their competitors who tend to be communications-focused professionals rather than investors.
When Strategic Investor Relations Consulting Firms are Most Useful
Strategic investor relations consulting firms are most useful when a company's valuation is suffering, despite having a high-performing IR team. In such cases, these firms can help by figuring out why the company's valuation is suffering. They will examine whether the company's story is being told properly and is easy to retell to generate virality. Additionally, they will investigate whether the company is disclosing the proper metrics to tell the story, whether management has credibility with the Street, and whether the company has consistently delivered on its promises and met or exceeded its guidance. These consultants’ experience as investors makes them uniquely suited to handle these tasks.
Why the Best Strategic Investor Relations Firms are Staffed by Former Investors
The best strategic investor relations firms are staffed by former investors, rather than former IR people or communications people. This is because only a former investor can truly understand how an investor thinks. Before hiring a strategic investor relations firm, companies should ask about the backgrounds of the people who will be working on their account. If the team is staffed with former investors, then the company can have more confidence that the firm understands the investors' perspective and can tailor the IR program accordingly. On the other hand, if the team is staffed with former IR professionals or with career communications professionals, a company runs the risk of perpetuating the same strategy that has gotten them to their current situation. If a company wants to change their predicament and get the valuation they deserve, then hiring a strategic investor relations firm staffed by former investors is the way to go.
The Cost of Strategic Investor Relations Consulting
Strategic investor relations consulting firms can be expensive, with monthly retainers ranging from $25,000 to nearly $50,000 per month, depending on the scope of the engagement. Additionally, the best firms also charge success fees based on an improvement in the company's relative valuation and expense reimbursements for things like travel and market data. Despite this significant cost, the top strategic investor relations firms can bring about real change for their clients, resulting in drastically improved valuations. The return to shareholders is therefore quite beneficial.
The Benefits of Strategic Investor Relations Consulting
The benefits of strategic investor relations consulting can be significant. Companies that work with these firms can expect to achieve some or all of the following:
Improved Valuation
The primary benefit of strategic investor relations consulting is an improved valuation that more closely aligns with the financial outlook of the company. By optimizing the company's IR program, the firm can help drive out valuation discounts that tend to exist when a company’s story is not properly told or when investors don’t have confidence in a particular company’s outlook. Ultimately, strategic investor relations consultants want to drive higher valuations for their clients.
Improved Perception in the Public Markets
Effective strategic IR can help improve a company's perception among investors, analysts, and the financial media. By adopting IR strategies that stress transparency, honesty, and humility, companies can gain increased trust from the financial community, which can ultimately result in higher valuations.
Better Communication with Stakeholders
Strategic investor relations consulting can help ensure that a company's communication with its stakeholders is clear, accurate, transparent, and timely. This can help improve relationships with investors and analysts and reduce the risk of misunderstandings or miscommunications.
Better Understanding of the Market
Strategic investor relations consulting firms have a deep understanding of the market and its dynamics – mostly because the top strategic investor relations consultants were often shareholders themselves. By working with these firms, companies can gain valuable insights into investor sentiment and market trends, which can help them make more informed decisions.
How to Choose the Right Strategic Investor Relations Consulting Firm
Choosing the right strategic investor relations consulting firm is critical to the success of the engagement. Here are some factors to consider when selecting a firm:
Experience
Look for a firm with a proven track record of success in working with companies in your industry and of similar size and complexity. Choose an IR consultant who has been an investor for 10 years or longer, as these consultants tend to have the best understanding of how investors make their decisions so they can properly advise you on your strategy.
Expertise
Make sure the firm has the expertise in your area. Ideally, they covered your sector while they were an investor or sell-side analyst. If they didn’t, but have expertise in adjacent industries, that can be sufficient as well.
Team
Ask about the backgrounds of the people who will be working on your account. Look for a team with a homogeneous set of skills working as analysts in related sectors as this will get you the best bang for your buck. Imagine having a team of shareholders walking around with you advising you on how to talk to investors. This is how the top strategic investor relations firms operate with their clients.
Process
Find out how the firm approaches its engagements. Look for a firm that takes a data-driven, strategic approach to IR and that can provide you with a clear roadmap for success.
Cost
Consider the cost of the engagement, including both the monthly retainer and any success fees. Look for a firm that offers a fair and transparent pricing model and who disclose their fees upfront. Rest assured, this is can be an expensive proposition to hire one of these top firms, but the benefit can be well worth it.
How Strategic Investor Relations Firms can Help – Final Thoughts
Strategic investor relations consulting firms can be a valuable resource for public companies that are struggling to maintain or increase their valuation. These firms can help optimize the company's IR strategy and execution, resulting in improved valuation, access to capital, reputation, communication with stakeholders, and a better understanding of the market. When choosing a strategic investor relations consulting firm, consider factors such as experience, expertise, team, process, and cost.
