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MiFID II Implications

One of the largest global regulatory packages in the past ten years became effective on January 3, 2018. The European Union’s Markets in Financial Instruments Directive, more commonly known as MiFID II, originated from the European Commission and is meant to provide a European-wide legislative framework for regulating financial markets. The primary goals of MiFID II are to strengthen investor protection and improve the functioning of financial markets, making them more efficient, resilient, and transparent. The reforms have an extensive reach, applying to banks, fund managers, traders, brokers, and stock exchanges across the 28 European Union (EU) member states (as well as Iceland, Lichtenstein, and Norway). At the heart of this legislation is more detailed reporting of trades across a range of asset classes (including equities, bonds, and derivatives), the imposition of a “best execution” obligation on financial firms, and the unbundling of research and transaction costs.

Unbundling research and transaction costs is arguably one of the most debated requirements under MiFID II. In more technical terms, MiFID II prohibits “inducements” – defined as fees, commissions, or other monetary and non-monetary benefits that may induce a manager to trade with a particular counterparty. Under U.S. regulation, “inducements” are more commonly known as “soft dollars” and are permitted assuming that the adviser meets its obligation of best execution. MiFID II strictly curtails the use of “soft dollars” and requires the unbundling of research services from transaction costs. Specifically, EU investment managers can receive research only if they pay for that research (i) directly (out of their own funds) or (ii) from a research payment account (RPA) funded with client money and with client approval (or a combination of both methods). This mandate and the competitive reactions to it have begun to alter the global institutional research and corporate access landscapes, leading to fund managers in the United States demanding similar transparency over how much they are paying for research and the services they are receiving for that payment.

Institutional Research

The unbundling requirements outlined in MiFID II have led to a few notable trends in Europe’s institutional research landscape – a decline in asset manager research spending, large gaps in research spending between managers using different research funding methods, and an increased interest in smaller brokers’ offerings or specialist research requisites.

According to a November report by Greenwich Associates, European institutional investors cut budgets for external European equity research by almost a fifth (19%) in 2018. The report predicts an additional 5% to 6% cut this year, while consulting firm Oliver Wyman expects banks to lose as much as $3 billion as asset managers cut back on research spending. Further, results from a survey by U.S. consulting firm Integrity Research Associates show that research shops in Europe are making less than peers elsewhere, adding to signs that the new rules have shrunk budgets for managers. Having opted to pay for research out of their own pockets rather than clients’, asset management firms in the region are squeezing providers for every penny. The survey reinforces signs that MiFID II has put pressure on the amount European research providers charge clients. The median average payment in the European region was $25,000, about 40% lower than in North America and 29% lower than in Asia.

Further, among a variety of fee structures, the subscription model is gaining favor. Eighty-seven percent of respondents charged for subscriptions, compared with 60% in Integrity’s early 2017 survey before MiFID II took effect. While subscriptions are typically for written research, the most valuable clients paid variable fees for so-called “high touch services” such as analyst access, according to Integrity.

Recently compiled data from Frost Consulting suggests substantial differentials in research spending between managers using client money versus those funding research costs through their P&L. The divergence in research spending by client-funded asset managers ranges from double to nearly eight times that of asset managers who are absorbing research costs. Compounding the problem, the spending differentials appear to be greatest in more research-intensive segments, such as emerging markets, biotech, and technology stocks.

In addition, fund managers are choosing more boutique brokers and research providers with increasing coverage of small and mid-cap companies. According to research from Liquidnet, 55% of respondents are taking research from more than fifty brokers globally, the same as last year, but that the mix of brokers is changing. Last year, 69% of buy-side firms chose bulge bracket brokers for research, but they are now differentiating between those who provide basic waterfront coverage and those who offer direct contact with the individual analyst.

Corporate Access

In addition to the trends seen across the research landscape, the treatment of corporate access under MiFID II has been particularly problematic. Under United States regulations, corporate access is considered a legitimate research expense that meets the criteria for research services. However, the European Securities and Markets Authority (ESMA) takes the opposite view, noting that with corporate access, “there is no implicit or explicit recommendation or suggestions of an investment strategy or opinion” regarding the current or future value of securities. MiFID II requires firms to “unbundle” their execution services from other benefits or services and make those benefits or services subject to a separately identifiable charge. While there’s often a set price for reading reports, everything else – analyst calls, bespoke financial modeling, conferences – is mostly up for negotiation, leading to a wide range of costs.

According to a survey conducted by ingage at the end of 2018, 85% of corporates think more institutions and corporates will arrange meetings directly – up from 59% during the same period in 2017. Almost two thirds (61%) expect to need greater IR resources to cope with this, and the platform – which operates on a system where both corporates and investors pay – also says 71% of corporates now believe the extra costs of arranging direct meetings should be shared, up from 44% at the same time in 2017. Just 2% of survey respondents believe the landscape will not change and that things will largely continue as before.

In addition, five large investing firms, including Fidelity Investments, Capital Group, Wellington Management, T. Rowe Price, and Norges Bank Investment Management, which oversee more than $7 trillion, are banding together next year to organize a series of meetings with company executives. This is a direct threat to the millions of dollars in fees banks make each year introducing their investor clients to company management teams. This shift toward greater direct contact (bypassing brokerage firms) is certainly something others have noted and expect to grow in the future.

Wall Street’s Reaction

Although the United States has not introduced similar legislation to MiFID II, some U.S. based managers have incorporated MiFID II requirements across their client base. Additionally, more U.S. fund managers have signaled the need for standardization.

In January, Capital Group, which manages more than $1.7 trillion, said in a statement that it would reimburse clients for the third-party research it uses after “having carefully assessed the global regulatory environment and market conditions.” T. Rowe Price, which oversees about $1 trillion, has told investors that it also intends to pay for research out of its own pocket and is “looking at various options to support a move to this model as quickly as possible,” Brian Lewbart, a company spokesman, said in an emailed statement to Bloomberg. In addition, Sands Capital Management, with over $35 billion in assets, has been footing the bill for outside analysis for over a year.

In addition, the Securities Industry and Financial Markets Association’s (SIFMA) asset management unit signaled in January that it wants the SEC to let brokers accept payments from U.S. clients just for research. “Investors would be best served if asset managers were able to choose a payment arrangement for investment research that makes sense based on the individual circumstances,” SIFMA wrote to SEC Chairman Jay Clayton.

If MiFID II changes are adopted in the U.S., securities firms could face tough decisions about whether to reduce their research analysts and market strategists. In Europe, the impact has been clear, with brokers’ earnings from equity research falling an estimated 20%, or $300 million, according to Greenwich Associates. Although the SEC, which has historically considered SIFMA’s positions when crafting policy, has seemed hesitant to make the kind of changes that the lobbying group is seeking, many predict it is only a matter of time before the U.S. goes the way of Europe.

If you are interested in learning more about how MiFID II may impact your company, contact our team today.

Audrey Gibson, Analyst

2019 Medtech Outlook

While the final three months of 2018 wiped out much of the gains created in the overall market in the first three quarters of the year, the average large cap medtech stock outperformed the S&P 500 for the fifth consecutive year. According to Bank of America Merrill Lynch, large cap medtech started 2018 at a 3% premium to the S&P 500 and now trades at a 23% premium to the S&P 500 on one year forward P/E, which is within a few points of the ten-year relative high. With uncertainty in the direction of the overall market and the relative valuation premium of the large-cap medtech being close to the 25% level set ten years ago, 2019 looks to be a very interesting year for medtech investors.

Corporate Fundamentals

Over the past several years, corporate fundamentals for the average medtech company have increased on an annual basis. According to Morgan Stanley research, 2018 organic growth for its medtech coverage was approximately 6.0%, a 100+ bps improvement over 2017 levels. This revenue growth was driven by new product innovations, robust emerging market growth rates, better than expected hospital volumes, and slightly positive insurance reimbursement rates.

Looking to 2019, revenue growth should continue at a similar pace to 2018, but might not outperform 2018 levels. Looking at the pace of FDA approvals and clearances for 2018, there were 26 non-supplemental PMA approvals in 2018, which was down from 46 in 2017. The number of traditional 510k clearances were also down year over year, to 2,541 in 2018 from 2,621 in 2017. While not all PMAs and 510ks are created equal, the year over year decrease in approvals and clearances could hinder 2019 revenue growth. On the flipside, there are many exciting technologies currently in pivotal clinical trials which could drive growth for the foreseeable future.

Emerging markets have played a large role in the overall revenue growth for the large cap medtech companies over the past few years. According to Bank of America Merrill Lynch, emerging markets drove 20-25% of total large cap medtech growth in 2018. During the summer and also in September, China imposed tariffs on $4.7 billion in US medtech exports, with the majority occurring in September. If these tariffs continue throughout 2019, they could negatively impact medtech growth rates.

Hospital procedure volumes have not had an impact on medtech growth for the past several years. In 2019, the potential migration of certain procedures to ambulatory surgery centers (ASC) from hospitals could dampen medtech growth, as reimbursement rates for ASCs are typically lower than hospital-based procedures.

Medicare and private insurance reimbursement rates have been a slight positive for the medtech sector over the several few years, as many policymakers have focused most of their attention to the pricing of certain biotech and pharmaceutical therapies. This is expected to continue, but the movement towards value-based care may negatively impact reimbursement rates.

Washington DC

Downtrodden Sectors

Over the past three months, the overall valuations of the biotech and pharma sectors have been decimated. With medtech stocks faring better in 2018, capital could move out of medtech into other healthcare sectors.

Overall, medtech is poised to have a solid 2019, as strong fundamentals should drive stock prices. That being said, stock picking could play a larger role compared to 2018, as overall valuations should remain constant. 2019 could turn out to be a “Missouri” year, where investors will demand companies “show me” strong fundamentals prior to investing capital. For more thoughts on 2019 and beyond, contact us.

Greg Chodaczek, Managing Director

Tips for Analyst and Investor Meetings

Things to Consider Before, During, and After Meetings with Wall Street

A fundamental component of a proactive investor relations program includes regular outreach and meetings with sell-side analysts and investors. We recommend showing a public company plan to the investment community for 2-3 days at least once a quarter. Those meetings can take many forms, including 1×1 meetings at an investment bank-sponsored conference, a non-deal roadshow (NDR) or site visits.

As part of the planning process, we’ve developed a checklist of reminders to consider when preparing for these meetings, during the meetings, and after the meetings.

Meeting preparation

Know your audience. Know the basic background for a sell-side meeting such as coverage list and model estimates; for the buy-side, know their investment style (value, growth, momentum, etc.) and if they are a current or historic shareholder. Do they own your company or a competitor? What’s their level of familiarity with your company or the sector? If possible, consolidate into a document that can be quickly reviewed before a meeting. This will help you tailor your remarks accordingly.
Inquire ahead of time if there are specific topics or questions that need to be addressed. Do they have a model prepared? Knowing these things in advance can ensure the meeting stays on track and the right people attend.
Consider what the “ask” will be or what you expect to gain from the meeting. This can range from insightful feedback from an analyst covering your sector to confirming that a current investor is up to speed and confident in your growth plan.
Ensure the talking points and disclosures are consistent among speakers. If you have this option, it’s good to rotate speakers on a lengthy day of 1x1s or a multi-day roadshow to provide a break and the opportunity to listen to how others present the same material.
Prepare for Q&A by answering practice questions out loud (not reading from a prep document). Practice saying, “That is not something we disclose” or “I’ll check on that and get back to you.”
Review Reg FD rules and the definition of material information. Determine what metrics are public and which ones are strictly internal. Ensure that everyone who is potentially speaking during the meetings is also apprised of the rules.
Post the deck you plan to use in your meetings on your website. That way, you don’t need to carry handouts, and you can reference it in discussions or pull it up if needed.

During the meeting

Set the stage for the meeting. Start by asking something about the people sitting across the table, such as “Can you tell me a little about your fund?” If that’s not possible (or necessary), start with an opening remark about your recent results or milestone; then ask if they want to run through the deck or jump right to Q&A.
Maintain a positive, neutral tone. It is ok to be optimistic and even bullish, but don’t ignore the realities that may face your business and market sector. Acknowledge an investor or analyst’s concerns and explain how your position is different without being dismissive or argumentative.
Don’t state a conclusion you think your audience should make (e.g., “There’s never been a better time to invest in us!”); rather, remind your audience of the three or four important things you want them to remember in order to draw the conclusion you want them to make.
Avoid making forward-looking statements or projections. Stick to information that is publicly available and keep the metrics offered consistent from one meeting to the next.
If asked about the competition, highlight your company’s competitive advantages instead of your competitors’ weaknesses. Try to avoid using competitors’ names.
Keep your answers succinct. Not only is it hard to follow a rambling thread, but this is most often when inadvertent disclosures are made.
Be mindful and respectful of the scheduled start and end time for the meeting.
Try to save a few minutes at the end of the discussion to ask for any feedback and follow up. This demonstrates that you are interested in their opinion and hopefully opens the door to discussing a next step.

After the meeting

Send a follow up email and reiterate your request for any feedback or next steps.
Capture notes, questions, and common themes from the meetings. This will be very helpful in crafting content for your next earnings call and Q&A prep.
Review feedback with your communications (IR, PR, Marketing) teams to ensure that the ideas are universally captured and incorporated into new materials, if necessary.
Review your investor deck while it’s still fresh. What slides did you tend to skip and which ones seem repetitive? Consider replacing or deleting. Also, what common themes emerged in your meetings that you may want to reinforce in new slides.
Track your meeting history in one place. This can be useful in referencing during future meetings, tracking frequency of meetings, and determining the potential impact a meeting had on shareholder ownership trends.

Meeting with sell-side analysts and investors is an ongoing part of a public company’s responsibilities. For more tips and help in preparation for these important meetings, contact us.

NOTE: Some of these suggestions were included in an eGroup forum discussed among members of The National Investor Relations Institute (NIRI), a professional association of corporate officers and investor relations consultants responsible for communication among corporate management, shareholders, securities analysts and other financial community constituents. NIRI offers its members information resources, networking, and a range of educational opportunities, and it is a valuable resource for anyone responsible for investor relations functions.

Leigh Salvo, Managing Director

Managing Q&As: How to handle a difficult investor question

When planning ahead for your quarterly earnings call, it is critical to spend time focusing on the Q&A portion of your presentation. Prepping for questions that investors will likely ask allows you to be prepared and to deliver concise, impactful responses. Preparing scripted answers for Q&A sessions begins with creating a list of questions that are topical and likely to be asked.

Another critical component of your Q&A preparation is focusing on the profiles of your investors. Understanding the investor’s investing history, comparable positions in similar companies and potential areas of focus for that investor will help you anticipate what he or she may ask during the Q&A session.

Most of the questions you receive from analysts and investors will be focused on the metrics of the most recent quarter, plans for growth, guidance and general housekeeping questions for their modeling purposes. However, expecting the unexpected will help you to be thoroughly prepared to field whatever comes your way. For example, an investor or analyst may ask you a question based on information they heard from an outside party, which may not be true. Or they could ask a question about an immaterial detail that, while small in nature, you may not have the answer to. Be prepared for any kind of question.

Below are some tips on how you and your management team can handle tough questions from the analysts and investors on your call.

Answer the question directly. Oftentimes, members of management doesn’t directly address the question that was asked. This may happen because they were not listening closely enough, or perhaps they didn’t know the answer and decided to talk about a slightly-related topic that is more in their comfort zone. Whatever the reason, you run the risk of eroding credibility with your audience or making them doubt your overall messaging if you avoid tough questions.

View every question as an opportunity. In preparing for your earnings event, you will have key messages you would like to get across. When answering those tough questions, remember that this is your chance to reinforce, restate or reframe your prior messaging. Use facts, stories and illustrations to highlight your business in the tone you would like to convey.

Stress-test your answers. As a team, go over the responses to the tough questions you anticipate. Spend time role playing by asking the questions back and forth and reviewing all possible answers. Practicing these interactions together will help your team create a cohesive message, ensuring the team comes across as confident and reassuring.

Follow-up with your analysts and investors. Although earnings calls and Q&A sessions can be an arduous and draining process, it is critical to stay on message and communicate with your investors and, most importantly, your analysts after the call. Each of the analysts will likely be writing a research note during and directly after your call to be published as soon as possible. Take the time to address unresolved questions, restate facts or make sure they have no additional concerns or questions. Putting in the time after the call will help prevent misstatements of data or facts that could spook the market.

Conclusion
Preparing well in advance for your earnings event Q&A session is a crucial step to ensure you are prepared for whatever comes your way during the session. Contact our senior team for further conversations surrounding how to make your performance on your earnings day a success!

Jessica Bornn, Principal

How to Get the Most Out of Your Non-Deal Roadshow

The aim of a for-profit company, public or private, is to earn a profit through its operations. In a perfect world, stock returns of public, for-profit companies would be positively correlated with corporate fundamentals; unfortunately, equity markets are inefficient. Scheduling a non-deal roadshow (NDR) is one of the easiest ways for senior management to introduce and educate institutional investors about its company and products.

The ultimate objectives of an NDR are:

Meet potential investors of your company
Educate and correct any misconceptions investors may have about your company or products
Listen and learn from industry analysts/experts

Successful NDRs don’t happen on accident. They take planning and preparation. Read through the factors below to see how to get the most out of your company’s next NDR.

Determine which institutional investors to meet. Institutional investors come in all shapes and sizes, so it’s best to determine the ultimate goal of your NDR before building a meeting schedule. Investor category (growth, income and value), investor type, assets under management, typical position size, average holding period and location can all influence the decision-making process of current and potential shareholders. For example, a small market capitalization company with thinly-traded shares should not focus primarily on meetings with large mutual funds. While some funds may want to meet with small companies, many may request a meeting only to learn about a potential competitor to one of its own companies. Instead of scheduling a full day of meetings with large mutual funds, meeting with family office-type investors could prove to be a better use of management’s time.

Determining which type of institutional investor to meet can also determine what region of the country a company should visit, as certain cities in the U.S. may have more hedge funds than mutual funds or more growth investors than value investors.

Know who you are meeting with. Analysts and portfolio managers are all different. Typically, analysts are specialists in sectors and industries, while portfolio managers focus on a much broader group of sectors. Analysts usually ask detailed oriented and product specific questions, while portfolio managers generally ask macro-level questions. Companies should also be aware that portfolio managers are the ultimate decision makers on what and when to buy and sell.

Be prepared. The adage “you only have one chance to make a first impression” holds true for NDRs. Whether meeting with potential investors or long-term shareholders, companies should always be prepared to make a great first impression. Management should know who they are meeting with, demonstrate company and industry knowledge, and stick to a clear, consistent message. Investors are much more confident about investing in a company when they know the right personnel is in place.

Avoid selective disclosure. In August 2000, the SEC announced Regulation Fair Disclosure, commonly known as Reg FD. This regulation mandated that all public companies release material information to all investors at the same time. With this new regulation, companies must be very cognizant of what information has and has not been made public. Selectively disclosing material information during an NDR is illegal, and it brings into question the integrity of management.

Conclusion
Non-deal roadshows are an integral part of being a public company and can be beneficial to both companies and investors. Having a clear plan, building a solid schedule and being prepared are key factors for a successful NDR.

Greg Chodaczek, Managing Director

Tips for Planning a Successful Investor Day

In order to set your company apart in the competitive investment capital environment, it is vital to plan and execute an effective investor day. Investor days allow you to stay top of mind and have regular and impactful contact with your analysts and investors.

The ultimate goals of an investor day are to:

Educate the investment community on your company’s investment thesis
Provide an update on the direction of the business such as new strategic initiatives, new products or new markets entered
Provide a picture of the quality and background of the management team
Dispel any misconceptions that may exist about the company

Below we detail important steps to consider when planning your investor day, remembering the end goal of leaving your investors with a greater understanding of your business and the investment opportunity with your company.

Set clear objectives – As you begin to plan your investor day, focus on why you are choosing to host the event at this time. What are the outcomes you hope for or expect? What are the messages you want to get across? Who from management should be present and address the attendees?

If you have a major announcement to make, planning your investor day around this event can add an element of excitement and allow you to give greater detail on the news. It can also result in higher attendance to your event. Consider incorporating speakers in addition to your management team, such as an industry expert that can attest to the success or efficacy of a new product or initiative that you are introducing.

Consider timing and place – Selecting an appropriate date to hold your investor day takes some consideration. Don’t plan your event around earnings or major holidays, or on a Monday or Friday. Take into account the time of year; the winter holidays and end of summer tend to be times when many people are traveling or busy with obligations.

Many investors and analysts attend investor days with the anticipation of getting face time with senior management. Allow time for these informal meet-and-greets with Q&A sessions, social events immediately following your event and/or one-on-ones. Select a city that will yield the greatest turnout of analysts and investors, one that has easy access to airports, hotels and transportation.

Hone your presentation – Ensure your slide deck is polished, professional and has been updated to reflect the changes since your last public presentation. Consistent formatting and messaging is key. Incorporate slides that highlight critical messages throughout your presentation, and rehearse your script many times to ensure the messaging and takeaways are clear. Ultimately, your slide deck should be robust enough for an investor, analyst or webcast listener who knows nothing about your company to get a clear understanding of your business with little to no commentary.

Discuss long term goals and milestones – Laying out your long-term goals and realistic financial milestones gives analysts and investors a benchmark on which to track your progress going forward. Lay out each of these initiatives with a clear path that demonstrates how you will reach these goals, and give a progress update on prior goals and initiatives. Don’t be afraid to highlight your former success and track record.

Conclusion
While there are many components that go into executing a successful investor day, following the guidelines above will result in an informed and captivated analyst and investor audience. Gilmartin Group’s years of experience in planning successful investor days can be a valuable asset to your IR plan.

Jessica Bornn, Principal

What’s the consensus on guidance?

Should we give guidance? With what metrics? At what interval? These are questions management companies often struggle with when it comes to how they want to manage the street’s expectations. The answers to these questions, like any other component of an investor relations strategy, are unique to each company. Establishing best practices when it comes to providing guidance is vital. That being said, data on the topic can help you make informed decisions.

In 2016, the National Institute of Investor Relations (NIRI) published data from a survey on earnings practices specifically surrounding guidance. NIRI invited its corporate members from publicly-traded companies to participate in an electronic survey questioning their practices on quiet periods, earnings guidance, earnings releases, and earnings call practices. A total of 407 individuals completed the survey, yielding a response rate of eighteen percent. We’ve summarized a few interesting tidbits on guidance from the report below.

Ninety-four percent of the responding companies say they provide some form of guidance (financial, non-financial, or both). This figure is consistent with data dating back to 2009.

Most companies provide both financial and non-financial forms of guidance. Fifty-eight percent of respondents reported providing both forms of guidance, identical to the 2014 percentages and up from thirty-nine percent in 2012. Thirty-three percent of respondents reported providing only financial guidance, up five percent since 2014. Only nine percent provided only non-financial guidance, which has remained constant since 2012.

The most common guidance metric provided is revenue. The top line of the income statement is often viewed as the strongest indication of a businesses’ performance, thus lending itself as the most coveted metric. The most popular method for communicating guidance is providing a range. Companies issue a range to communicate the set of expectations. The second and third most common methods, respectively, are directional information and fixed estimates. Most of the companies surveyed (sixty-seven percent) chose to issue guidance over the span of a year, while twenty-nine percent provide quarterly estimates and twenty percent provide estimates with a time frame greater than a year.

Non-financial guidance is most frequently issued as qualitative statements about market conditions. This can include market conditions, regulatory environment changes, governmental factors, foreign currency impacts and industry specific information.

Conclusion
The goal of guidance is to create a transparent dialogue on business performance expectations between management and the investment community. Factors companies should consider before issuing guidance include:

Precedence – are we willing to consistently provide these metrics? The information provided will be expected to be discussed, updated and issued continually as part of the regular reporting structure of a company.

Accuracy – are we confident in our projections? These numbers will be the benchmark for future performance. Management credibility is at stake and instilling confidence among the street is paramount.

Contact Gilmartin Group for assistance in establishing best practices surrounding your guidance framework and to work through reasonable guidance timelines and ranges.

Philip Taylor, Associate

Four Keys to Attracting and Maintaining Sell-Side Coverage

There are many factors that go into sell-side analysts’ decisions to pick up coverage on a stock. Some of the questions they will ask themselves include:

How much trading volume does the stock have?
Can I interest my buy-side clients in this company?
Can I generate trading revenue for my bank?
Is there a clear path to growth and revenue for the next 3-5 years?
Do I understand the company story and what makes them unique?

Considering those questions, there are a few strategic ways you can position your company to garner sell-side coverage.

1. Hone your pitch: Can you clearly communicate why an analyst should want to cover your company? Is there potential for growth? How is your company and forward-looking plans different from those of your competitors? What sets your management team apart? Have you clearly conveyed your new technology, initiatives or path to regulation? Knowing how to answer these questions will prepare you for successful conversations with analysts.
2. Set realistic goals and strategy: Can you clearly lay out a 3-5 year strategy outlining your revenue goals, growth goals, and the ways in which you will achieve those goals? Setting a realistic, reachable 3-5 year plan allows analysts to get comfortable with your financials and set benchmarks for your company that they will return to time and time again as they cover your stock. They will use these defined plans to build out their future projections and financial models for your company. The goals you lay out in the beginning become the foundation for many of the questions you will hear during earnings calls and one-on-one meetings.
3. Forge relationships with the appropriate-sized firm: If you are a small or micro-cap company, don’t expect an analyst at a large-cap bank to pick up coverage on your stock. Typically, they will not be interested in a low-volume or thinly-traded stock, as it will not generate interest from their buy-side clients or trading volume in general. Instead, forge relationships with a smaller sell-side shop or boutique firm. Generally, a boutique sell-side firm will have analysts that are interested in covering your stock and excited to partner with you from the beginning. These relationships can also lead to banking deals down the road when you need additional financing.
4. Get your name out there, and don’t be afraid to go on some “dates”: Make a concerted effort to say yes to the right conferences, non-deal roadshows and industry events. This exposes you to other analysts and bankers that may not be familiar with your story. Also, make an effort to get to know analysts and associates at other sell-side shops. Go on some analyst “dates” and get comfortable with each other. Once your company grows, these analysts may pick up coverage on your stock, or an associate may roll out their own coverage and include your stock. An analyst may leave one firm and pick up coverage of your stock at a different firm. In the meantime, they have gotten comfortable with your story, your strategy and your management, making it easier to initiate than if they were starting from scratch.

Conclusion
Remember these key tips for attracting sell-side coverage:

Start out with a clear, 3-5 year revenue and strategy plan
Set goals that you can meet and beat
Understand your size and the sell-side firms that would be most appropriate for you
Keep your exposure levels in the industry robust and high quality

Each of these factors will open a clear path to gaining sell-side coverage in the near term, and ultimately, more coverage in the long term.

Jessica Bornn, Principal

How Many Sell-Side Analysts Should Your Company Have?

What’s the right number of analysts for your company?
Each public company is different, and so are the analysts and investment banks that cover them. Analysts cover stocks for a host of reasons, including institutional (client) interest, liquidity, perceived valuation, potential upside, and investment bank relationships. Based on these factors, large-cap companies typically have more sell-side coverage than their small-cap counterparts, but this does not mean sell-side analysts ignore small-cap companies.

With the emergence of boutique investment banks and the traction they are gaining with institutional investors, small-cap companies with strong business fundamentals should be able to attract an audience of sell-side analysts. Determining the ideal number of analysts depends on the analyst and his or her reason for covering the company.

Why do analysts cover stocks?
What are the determining factors as to why an analyst would choose to cover a stock? Below are some of the top reasons and motivations behind why sell-side analysts cover particular stocks.

Sometimes analysts cover stocks based on personal and investment banking relationships.

Analysts can also seek to pick up coverage on companies that provide the next trending technology or device. While coverage from these analysts may be looked down upon by a small number of institutional investors, they play a very important role. They will most likely help a company raise additional capital, and they also become the company’s biggest advocate by reaching out to potential investors through non-deal roadshows (NDRs) and conferences.

Another reason sell-side analysts cover stocks is that they believe a company may be undervalued. Such analysts are usually very knowledgeable in their respective industry and have a strong following from institutional investors. Having coverage from these analysts can give a company creditability, which could drive institutional ownership.

Other analysts are industry experts who cover a company, no matter the size, because it is in a certain subsector. Depending on the size of the company, these analysts may or may not spend a tremendous amount of their time and resources focusing on a certain company under coverage.

What else do analysts provide?
No matter why they choose to cover a company, all sell-side analysts typically build financial models and provide quarterly and annual estimates to their clients and financial data consolidation firms. Financial data consolidators not only provide market news, but they also calculate consensus estimates, based on the most recently-published earnings models provided by the sell-side analysts. Sell-side analysts usually build their estimates based on industry research, market analysis, and experience.

Once an analyst is happy with his or her model, it is compared to the financial guidance provided by the company. Some analysts may alter their financial estimates to reflect corporate guidance, while others will not. Because corporate valuations are typically calculated based on reported quarterly revenue and earnings, it is important to have consensus estimates that are similar to company guidance. Having a larger number of analysts covering a company could help to smooth consensus estimates by lowering the impact of an estimate that is much different than the rest.

Conclusion
Sell-side analysts can be very valuable to public companies, but the number of analysts your company needs depends on why analysts are covering your company. Having several analysts from each of the groups described above is most advantageous, as each group provides something different. Regarding financial estimates, having at least five analysts writing research helps to lower the impact of outlying estimates.

While there is no perfect answer to the question of what is the best number of analysts to cover your company, having some amount of sell-side analyst coverage will benefit any company.

Greg Chodaczek, Managing Director

Best Practices for Analyst Meetings

There are a variety of options for a company when it comes to analyst and investor events – full or half-day meetings on a standalone basis, formal meetings at industry tradeshows, or smaller roundtable events. If orchestrated well, Analyst Meetings can effectively improve a company’s perception, increase Wall Street awareness and understanding, and generate investor support.

Many large and mid-cap companies host Analyst Meetings annually as a matter of course. Often, the subject matter will rotate so that each year there is a deep-dive on a business segment. For small-cap and emerging growth companies, this strategy may not make sense, as material could be repetitive and resemble the standard management presentation given at an investor conference.

So what defines a successful Analyst Meeting? What parameters should be considered when deciding when to host one and what content to include? Here are five key tips to consider when hosting an Analyst Meeting:

1 | Establish a goal. An analyst event is an opportunity to communicate a tailored message to Wall Street outside the cadence of quarterly earnings calls. Therefore, it is important to clearly define the takeaway message from the event.

Is your goal to have Wall Street better understand a particular business division or product pipeline?
Are you outlining the competitive landscape and defining your advantages?
Do you have new clinical data or technology to highlight?

This focus will drive content, speaker selection, and possibly even the timing and location of your event.

2 | Schedule the event to maximize attendance. Select a date that avoids overlap with competing events, as well as a location that will be convenient for your target audience.

If your headquarters are overseas or outside the country where your stock is listed, consider doing an investor day in the country of your listing
Capitalize on the investment bank conference schedules, and look to schedule meetings in the days before or after the conference with investors that will be traveling to a location for multiple days

3 | Plan ahead. Start planning 3-6 months ahead. Create a task list and timeline to ensure all details are confirmed before the event.

This list should include, but is not limited to:

Reserving the venue and related logistics
Confirming outside speaker availability
Creating an invitation list
Sending a save the date and invitation
Creating slide decks
Ordering a webcast (if webcasting)
Planning leave-behind materials
It is also important to plan a rehearsal to avoid AV or venue-related glitches

4 | Include outside speakers or internal leaders that are new to Wall Street. Analyst events are excellent opportunities to highlight company contributors who interact less frequently with Wall Street; they provide both a fresh perspective and a fresh face for your audience. These contributors can include members of your management team or physicians involved at a clinical or commercial level. Because these new speakers interact with Wall Street less frequently, this is a good opportunity to review SEC Regulation Full Disclosure guidelines as well as the company’s disclosure policy, in order to avoid inadvertent release of non-public material information.

5 | Keep a tight agenda that packs a punch. Investors and analysts are busy; we have found that the most successful Analyst Meetings hosted by emerging growth companies have a targeted agenda that moves through presentations in under two hours, including time for Q&A. Planning a tight agenda ensures that your most important points are highlighted during the meeting.

Conclusion
In conclusion, there are a lot of important factors to consider when planning Analyst Meetings. Key items to consider are what your overall goals are and what will be the most impactful and efficient way to relate these goals to your investor and analyst audience. Be thorough in your preparation, scheduling and rehearsing. Implementing these key considerations in your next meeting will help achieve your company’s goals and increase Wall Street awareness.

Carrie Mendivil, Principal