No personal contact, no investment in your company. The simple truth is: Investing is a people business and Investor Relations is about building relationships. Going on a roadshow to get in direct contact with institutional investors is obviously one of Investor Relations most important activities. Roadshows offer an opportunity to ensure that Investor Relations has a good idea on the views and wants of key shareholders. Now, this task has become more challenging.
With a new standard for financial service providers called MiFID II, European regulators have changed the game for companies, brokers and investors. Because of the unbundling of research and trading functions at financial institutions, less research is provided especially on small and mid-cap companies. The consequence for these companies is, that with their lower visibility in the new regime, it will become increasingly difficult for them to find brokers willing to introduce them to new investors in the regions impacted by the MiFID II-regulation.
What makes it even more difficult for companies to meet with investors is that banks often have no reach into pan-European investor base. They generally get companies to meet those investors with whom their brokers have established business contacts.
Additionally, it must be clearly stated who bears the costs for research or corporate access. This means that these services are exposed to the mechanism of supply and demand – and paid for with a bill. For large-caps, the matter is clear. In the future, large asset managers will no longer reward research about Apple or Siemens shares with orders but will pay separately. The situation is quite different for small and mid-caps. Here, the issuers have to bear the costs themselves. This turns the analyzed companies into customers which raises two questions: Will the quality of paid research be accepted by investors? And how will investors meet mid- and small caps?
One consequence is that roadshows facilitated by others than brokerages will get more important for both sides of the table. Corporates will have to intensify investor targeting and get into direct contact with investors they prefer to meet. Basically, this means going after investors who are unlikely to come knocking on one’s door. Companies will have to broaden their capital horizons to maintain a diversified shareholder base, support liquidity and in the end reduce volatility. Investors have got to be more open to accepting meetings organized by corporates or other intermediates.
Especially in Europe, investors are already very open to learning about great companies and investing in promising business models around the globe. From Helsinki to Madrid, in over 20 financial centers, institutional investors manage funds and the money of wealthy people. In fact, European GDP is almost as high as that of the U.S. When it comes to the top roadshow places, IR Magazine’s global roadshow report of 2018 shows that half of the top 20 roadshow destinations are European cities.
And from a U.S. perspective, nearly any successful North American stock listed company has significant revenues from Europe. That’s why they are best advised to consider diversifying their investor base in Europe while strengthening brand recognition to the European investor community at the same time.