Last week was a welcomed return to the in-person J.P. Morgan Healthcare Conference held in San Francisco each January. The annual event reunited fervid participants and fostered meetings among investors, analysts, bankers and strategic corporate teams across both public and private clients. At Gilmartin, we see this conference as the first look into the upcoming market environment, and the positive response to results and guidance has us looking ahead to investor expectations for 2023. In this blog post, we’re breaking down our key takeaways across the Medtech, Biotech, Tools & Diagnostics and Services/Digital Health/HCIT sectors.

Public Medtech Key Takeaways

Key Takeaway: Macro dynamics improve and stabilize, setting the scene for recovery within the MedTech sector

Context: Underperformance, market volatility, and general unpredictability complied a mixed bag for companies in 2022, but the MedTech sector looks ahead to a more positive 2023 after a successful conference.

Additional Thoughts: Most companies delivered in-line to better-than-expected results as procedure volume recovery led to positive trends within the recovering MedTech sector and provided early visibility into an improved 2023. While some uncertainty remains, the space seems to be looking ahead to a healthy year.
Why this matters: Sentiment is a crucial indicator of investor interest and appetite and now is the time to set the stage, have conversations and execute goals.

What’s needed? Market recovery and increased clarity on the direction of the market. While procedure volume recovered and staffing shortages lessened, many held off on providing initial 2023 guidance or published conservative ranges to account for unpredicted volatility.

• FX, inflation, supply chain, and China concerns are still looming and remain top of mind, and investors will look to Q123 for clarity.

In the meantime, growth remains essential, and there is a renewed focus on profitability or a pathway to it. Investors remain interested, engaged, and patient and will keep focusing on continued growth within the sector. Setting achievable expectations and upfront communication to enable future beats and raises is key for companies looking to capitalize on upside potential.

What investors are looking for:

• Execution – clear communication of expectations and outperformance of goals
• Continued market recovery – stabilization/improvement of macro trends will be critical to a healthy 2023
• Profitability or a clear plan towards it

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Private Medtech Key Takeaways

Key Takeaway: Incremental buzz building around the most mature private medical device companies with M&A likely a key 2023 theme

Context: 2022 marked by volatility, fewer private financings with many valuation contractions, no meaningful non-spin IPOs.

Additional Thoughts: As the gap in bid/ask valuation expectations appears to remain wide, companies are mostly “heads down” in execution mode as they bolster their investment theses and prepare to move opportunistically to raise private capital, move to an IPO process, or consider strategic options.

At Gilmartin we see the list of “public ready” private device companies already long and continuing to grow with many eyeing a window that may be open as soon as mid/late-2023 for first movers, and more broadly in 2024 (when companies more likely to get credit for FY25 expectations).

Why this matters: Time/attention of key investors increasingly at a premium and relationship building now will pay dividends in terms of reducing IPO execution risk.

What’s needed? Further clarity on Fed action cadence/inflation and the ability for U.S. economy to “soft land” as well as avoidance of exogenous geopolitical and macroeconomic headwind events will remain critical as investors and bankers eye the VIX and further upswing in risk-on sentiment.

• Clarity on “time to exit” will further de-risk private financings, particularly for crossover investors who seem to remain more focused on existing portfolios and fair-valued publics.

In the meantime, VCs are still fundraising with meaningful dry powder. In SF around the conference many seemed incrementally eager to put in real work (many have mandates to deploy “rain or shine”) with interesting companies beyond just relationship development.

What investors are looking for:

• De-risked (regulatory, reimbursement, TAM) platform technologies with upside potential over medium term.
• Strong commercial execution and supercharged growth (50%+) despite challenging macro environment over last 2 years.
• High level of predictability in model over medium run.
• High margins with near-term path for EBITDA positive increasingly important – this may inform which companies move first towards an IPO.

M&A: Consolidation (transformational & tuck-in) likely a key theme for 2023 and 2024 as less mature private companies with interesting assets and significant potential TAMs but dwindling capital look to M&A to deliver long-awaited shareholder value.

• Go Deeper: Shockwave Medical Announces Agreement to Acquire Neovasc

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Biotech Key Takeaways

Key Takeaway: Bankers are keen to emphasize that Big Pharma is motivated by filling gaps in their portfolio (relating to patent expiry, etc.) rather than opportunistic buying at what most would consider bargain basement prices. The biggest opportunity for rapid value creation is among undervalued small/mid cap companies, which are already starting to show some signs of life at the start of the year.

Additional Thoughts & Context: When you’ve reached rock bottom, there’s only one way to go, and that’s up. Life sciences M&A activity remains near historic lows, with a handful of deals announced early in the week, and expectations for a continued anemic environment for consolidation. All deals ranged ~$1-1.5B and went for major (~100%+) premiums, perhaps a more encouraging sign entering 2023, compared to the lower premiums observed in 2022. Acquirers continue to highlight the attractiveness of the rare disease space (as well as CV disease).

What Biotech Investors are Looking for:

• In the biotech world, we all know that data is king…but what kind of data? In the pre-COVID era, biotech investors were more willing to take risks on preclinical stage platform companies with cutting edge science. In today’s environment, cool science simply won’t make the cut as investors seek to fund de-risked companies with clinical data.
• Investors have emphasized that the bar for capital allocation into private companies is higher now than it has ever been. Investors with optionality are pivoting their focus to the public markets.
• Positive data and drug approvals continue to play a significant role in value creation and upward movement in stock prices in 2023.
• Despite the chaotic market over the past three years, Sofinnova Partners Chair and Managing Partner Antoine Papiernik believes biotech is still in a much better position than it was a decade ago.

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Tools & Diagnostics Key Takeaways

Key Takeaway: J.P. Morgan engagements were exceedingly positive across the Tools & Diagnostic sector, leaving an increased appetite for bolt-on acquisitions to consolidate a fractured market.

Additional Thoughts & Context: Headed into the conference week, sentiment was largely subdued for the Tools and Diagnostics sector, as investors weighed the economic backdrop and other macro factors against companies’ fundamental business outlooks. Against that backdrop, the sector provided predominantly positive updates for Q4 of 2022 – with nearly three-quarters of the companies preannouncing messaging. Looking ahead however, companies were less forthright on the outlooks for the year, with only a handful providing forward guidance for 2023. The reluctance to provide concrete guidance metrics for 2023 is unsurprising in our view, given the persistence of various factors including inflation, China uncertainty, COVID, and the state of the global economy – in turn creating uncertainty in sales cycles, geographic expansion, and capital markets activity. For growth companies in particular, investor focus remains on cash conservation/extension and, as applicable, paths toward commercialization/revenue and profitability.

Presentations from industry leaders highlighted financial flexibility to fund current business growth as well as strategic M&A opportunities supported by strong balance sheets and often a chest of cash on hand ready to facilitate acquisitions. Across the table, sellers and investors alike remain disciplined to make sure these assets ultimately end up in the hands of the best acquirer with proven management teams that will drive long term value growth and thus, willing to be flexible on upfronts for earnouts. Following the myriad of meetings last week, we came away encouraged by the fact that investors and management teams were aligned in crafting pragmatic structures that will ultimately benefit both buyers and seller

What Tools/Dx Investors are Looking for:

• Clarity on sales cycles and business pipelines given economic backdrop
• Impact of macro factors – China uncertainty, COVID, inflation – on operations, and active efforts to address those persisting
• Activities to manage cash conservation and extend runway
• As applicable, paths toward commercialization/revenue and profitability

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Tech-Enabled Healthcare: Services/Digital Health/HCIT Key Takeaways

Key Takeaway: For tech-enabled healthcare and services, JPM started with a deluge of news flow (aligning with the atmospheric river we faced); but for the takeaway on preannouncements and 2023 guidance, companies were largely in line with expectations and included a few beats.

Context: With the macro backdrop of recessionary concerns, inflation, budgetary constraints, tight labor markets, this near-term caution was somewhat expected. Once the conference started, the sentiment turned more positive based on the solid fundamentals of the sector, the availability of strategic options and longer-term outlook.

Additional Thoughts: There was strong representation across the sector with roughly 100 companies participating in the space, ~60% of which are public and ~40% private. Notable sub-sectors included primary care provider groups; behavioral health; chronic disease management; care coordination; physician enablement tools for better engagement, workflow solutions and women’s healthcare groups.

What Investors Are Looking For & Key Themes from the Public Sector:

• M&A – top of mind for companies with strong balance sheets prioritizing objectives to broaden clinical capabilities, solidify geographic footprint and/or enhance strategic partnerships
• Importance of ROI amid the macroeconomic backdrop
• Restructurings and divesting less profitable businesses to expedite pathways to positive cash flow and to extend cash runway
• Clinical labor constraints persisting with many provider groups expecting labor costs to remain a pressure point; however, many citing deceleration in wage inflation compared with past years
• Regulatory overhang around Medicare Advantage (MA) suggesting some potential reimbursement risk into 2024
• While early innings for value-based care (VBC), continuing growth across capitated providers and companies investing in risk bearing capabilities
• COVID impact waning since December, including on utilization

What Investors Are Looking For & Key Themes from the Private Sector:

• Investors eyeing 2H 2023 for a re-opening of the IPO window with an expectation for further correction to private valuations, especially late-stage, to first catch up with public markets
• High growth companies messaging shift to profitable growth as primary focal point rather than prior emphasis around growth at all cost
• Gross margin profile to be key bridge to EBITDA profitability pathway
• More non-financial KPIs (e.g., patient/member engagement metrics, clinician retention rates, workflow productivity measures)

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Conclusion & Final Thoughts

Overall, we come away from the week incrementally encouraged by the state of the sector given the largely positive Q4 updates, while awaiting further clarity on how the space views the outlook for 2023.  

2022 saw volatility and uncertainty across all sectors, putting many investors on the sideline, but early looks at 2023 provide insight into what a shifting landscape could look like assuming recovery continues.

There has been a very broad reshuffle of talent across banks and funds that has fundamentally changed the landscape of key players since the ’19-’21 cycle that underlines the need to plan well ahead of time for an IPO. 

Although one never really knows where rock bottom lies, optimism is in the air. 1H23 is expected to see some follow-on offerings, PIPEs and private financings, with the IPO market possibly reopening in 2H23, subject to recovery in asset prices, an easing of geopolitical tensions, an end to U.S. interest rate increases. 2023, let’s go.  

To learn more about how Gilmartin strategically partners with our clients, please contact our team today.

Authored by: David Holmes (Managing Director), Alex Khan (Vice President), Kiki Patel (Principal), Brian Johnston (Principal), Hannah Jeffrey (Associate), Ryan Halsted (Managing Director) & Ji-Yon Yi (Vice President)

After a two year COVID-related hiatus, healthcare executives, investors, research analysts, bankers, and venture capitalists are once again headed back to San Francisco to meet with corporate management teams and greet old friends. While COVID-19 has somewhat loosened its grip on the U.S., its repercussions are still being felt in every industry, especially healthcare. Throughout the next week, tens of thousands of corporate presentations and 1×1 meetings will occur within a quarter mile of Union Square—most (if not all) of which we expect to touch upon these four topics:

1. The U.S. economy
2. Hospital staffing
3. Foreign exchange rates
4. 2023 financial guidance

The U.S. Economy

Starting with the elephant in the room, the state of the U.S. economy. In the first quarter of 2022, the federal funds rate was approximately 0%, and the Federal Reserve continued stimulating the economy by buying billions of dollars of bonds every month to ward off a potential COVID-related slowdown. Fast forward to today, the Federal Reserve has increased rates seven times in the last ten months to a rate of 4.50% as it tries to slow the overheated U.S. economy. Based on the Market Probability Tracker from the Federal Reserve Bank of Atlanta, the probability of an additional rate hike of 25 bps on March 13, 2023 is 92%, which would move the federal funds rate to a level not seen in over 15 years.

The question on everyone’s mind is, has the Federal Reserve raised rates so quickly that a recession is inevitable? According to a recent Washington Post survey of eight major banks, 75% of the participants predict a mild to modest recession starting sometime in the early spring or summer. In contrast, 25% believe the U.S. will “narrowly avoid” a recession. Recession or not, the rapid increase in rates has helped to lower inflation rates, including gasoline and food prices. Unfortunately, higher interest rates also typically lead to lower job openings, home sales, and equity valuations, all of which have occurred. With that in mind, investors will be listening very closely to the comments made by corporate management teams to help determine if the U.S. economy is destined for a 2023 recession.

Hospital Staffing

During the third quarter’s earnings cycle, over half of the 75 medtech companies we track cited a shortage in hospital staffing or the generic “macroeconomic headwinds” as a factor for a current or potential slowdown in sales. While hospitals typically deal with worker burnout and staff turnover annually, COVID has exasperated these issues. This phenomenon, coupled with increasing wages, has created problems for hospitals nationwide. With limited staff, hospitals have no choice but to postpone certain elective surgeries in favor of emergency procedures or surgeries with higher returns. As a result, we expect hospital staffing will be a hot-button question next week, and we will track this issue closely.

Foreign Exchang Rates

Starting in May 2021, the U.S. Dollar Index increased over 25%, peaking in late September 2022 at 114.10. While a strong dollar is great for companies looking to purchase foreign goods in a local currency, it hurts companies that sell their products in foreign currencies, as they must convert these foreign sales back to U.S. dollars. Throughout the third quarter earnings cycle, many of the larger healthcare companies mentioned the strong U.S. dollar as a reason for slower year-over-year revenue growth. Fortunately for these companies, the U.S. Dollar Index has decreased approximately 9% from its September high. While predicting foreign currency changes is best left to the experts, we expect most large healthcare companies attending the J.P. Morgan Healthcare Conference to call out foreign currency exchange rates during their presentations and 1×1 meetings.

2023 Financial Guidance

Last and certainly not least, 2023 financial guidance. First, the data. Based on the companies we track in the Medtech and Diagnostics sectors, the trend of pre-announcing financial results and providing forward guidance increased before the COVID-19 pandemic. However, this trend reversed over the past two years. As a reminder, the past two J.P. Morgan Healthcare Conferences have been conducted virtually.

• 2016: 23% pre-announced; 9% provided guidance for the upcoming year
• 2017: 28% pre-announced; 11% provided guidance for the upcoming year
• 2018: 39% pre-announced; 17% provided guidance for the upcoming year
• 2019: 38% pre-announced; 17% provided guidance for the upcoming year
• 2020: 27% pre-announced; 14% provided guidance for the upcoming year
• 2021: 23% pre-announced; 11% provided guidance for the upcoming year

In the past, we have advised companies to consider factors like the finality of the financial results and investor preference for consistency before pre-announcing and providing forward guidance during the week of the J.P. Morgan Healthcare Conference. However, we think this year is different based on the previous three topics we have discussed, and we expect the number of companies providing 2023 financial guidance could be less than 10%. For those companies that do, investors will be listening intently to help formulate their own thoughts on what 2023 could mean for healthcare stocks.

Conclusion

Next week, San Francisco will once again be overrun with healthcare investors, analysts, bankers, and corporate management teams overpaying for food, drinks, and hotels, all the while hoping to hear incremental information to help shape their investment decisions for 2023. Bring an umbrella.

Have fun, stay safe, and here’s to a better market in 2023!

Authored by:  Greg Chodaczek, Managing Director, Gilmartin Group

JP Morgan 2023 is right around the corner. Readjusting to attending the conference in-person can be a bit daunting. To help spark your muscle memory and prepare you for a successful conference, we’ve pulled together our top 10 tips & tricks to a better, more efficient and valuable JPM week.

1 | If you’re going to refresh your deck, do it now, not during the first week of January when everyone’s sprinting to the finish line and dealing with rush prices and high stress levels. Messaging and thoughtful graphics take time, so be sure to carve out an appropriate amount of dedicated time in your schedule over the next week to finalize your presentation deck with your IR and communications teams.

2 | Focus on quality over quantity. Schedules for JP Morgan fill up quickly—prioritizing your meeting list with your IR team is essential to making sure your time and efforts during the week are as valuable as possible. Focus on buy-side investors and target funds you were unable to meet with on your last roadshow. Use residual space in your schedule for your covering sell-side analysts and those within your space who don’t yet cover your company. Strategic prioritization will allow you to have fewer conflicts, less exhaustion and likely a happier week.

3 | Have something new to say. JP Morgan is a time where many companies will display new strategies, revamped messaging and lay out next year’s milestones. To avoid falling flat in investor meetings, we recommend bringing something new to the table. No one wants to walk into a meeting to hear the words, “well, nothing much has changed.” A quick tip for remaining Reg FD compliant: consider putting out a “cleansing press release” ahead of time so that you’re free to talk about whatever you need to during meetings.

4 | Do the necessary health and wellness prep and packing. Get your flu shot and COVID booster in advance and bring painkillers, an umbrella and comfy pair of shoes with you. Nothing is worse than taking meetings when you are ill or aching, and with 2023 being the first in-person JPM since COVID, bringing your cough and cold into meeting rooms will largely be frowned upon.

5 | Have something to look forward to every day. It’s no secret that J.P. Morgan can be a daunting week and take a toll mentally and physically. Be sure to take care of your emotional wellbeing to avoid burning out too early in the week. Take time to hit the gym, go to a cocktail reception, meet up with an old friend or carve out 30 minutes of down time to rest. Being in the best mental and physical space will ultimately translate over into more productive, efficient meetings.

6 | Don’t drink too much/make sure you get enough sleep. Meetings can be tough to sit through as the week goes on, especially if you’re not the principal speaker. Maintaining a healthy balance between having some fun at networking receptions and getting enough sleep is essential. Try your best to look alert and interested in even your fifth or sixth meeting of the day. The overall optics of your management team during investor meetings can make all the difference.

7 | Optimize logistics and be amenable to going off-site. Companies aren’t the only ones who secure dedicated JP Morgan meeting space. Some financial institutions will only take meetings in their own reserved space or in their San Francisco office locations. Ensure that your IR team or scheduling manager is optimizing time by arranging your on-site meetings on the same day, and reserving space on other days for traveling around Union Square to meet with funds and investors in their dedicated meeting spaces.

8 | Don’t arrange your BoD meeting for JP Morgan week. Why make the week any more difficult than it has to be? There are plenty of other weeks in January. Board meetings take a lot of preparation, work and effort. Despite being “all in the same city at the same time,” a better use of energy and effort might be to catch-up with your board in a more informal setting over dinner or drinks and save the formal board meeting for later in the month.

9 | Consider only going for 1-2 days. Make efficient use of your time by limiting your attendance. This is also a great way to avoid extra costs, burnout and exhaustion. You can maximize your efficiency and minimize your down time by opting for 1-2 days. This goes without saying, but you can make yourself and the larger management team available during the rest of January to anyone whose schedules were unable to accommodate a meeting during your days at the conference.

10 | Use a mobile app like Expensify to track your expenses during the conference. Mobile expense apps make multi-day trips like J.P. Morgan so much easier. They save you the time and effort of going through all of your receipts when you get back to the office. Expense-tracking apps are quick, easy and mean that you can be done with classifying your J.P. Morgan expenses by the time you board your plan back home.

All-in-all, the JP Morgan conference takes an immense amount of planning, strategy and forethought. With decades of experience attending the conference, we hope that our Top 10 Tips & Tricks to a Better JP Morgan helps to further prepare you and your team for an intense week of meetings. To learn more about how Gilmartin strategically partners with our clients, please contact our team today.

Traveling to investor conferences can be time consuming and exhausting. While management teams are often provided with schedules from the conference host and investor biographies from Gilmartin, a name and biography doesn’t always tell the complete story. Understanding the job function and responsibilities of the person you’re meeting with are critical pieces of information to management teams. Job function and responsibility on the buy-side does vary, considerably at times, by individual firm. Even within some larger firms, there is ambiguity on who does what related to investment decision making and discretion. However, despite variability, there are some commonalities across investment organizations within roles and responsibilities. To help management teams navigate the 2023 J.P. Morgan Healthcare Conference, we’ve compiled a comprehensive list of the “who’s who” of meetings:

Portfolio Manager (PM)

Individual or group of individuals who are responsible for making investment decisions to allocate capital on behalf of investors. They are ultimately responsible for the construction of the portfolio and are held accountable for the performance with a track record. The portfolio identifies which stocks to own and how much of each stock to own.

• Generalist Portfolio Manager: Generalist PM’s have a philosophy around what makes a stock “good to own” for a given period of time; the expected holding period. They often ask big-picture questions surrounding whatever philosophy drives their investment decisions to determine whether or not a company is a suitable “match” for their portfolio. In layman’s terms, they are looking for round pegs for round holes.  These questions/criteria can range from business operations to financial performance to industry competitiveness and thematic ideas. Philosophy examples include High Growth, Growth at a Reasonable Price, Category Killers/Innovative Disruptors, Compounding Businesses, High Margin/Free Cash Flow, Asset Light/High ROIC business models, etc.
• Healthcare-Dedicated Portfolio Manager: Often have a secular view on Healthcare and innovation to drive successful investments, either as a stand-alone healthcare strategy or within a broader multi-sector team. Oftentimes, these individuals are labeled as “Specialists” who have an educational background in the sciences; MD/PhD’s who have forgone industry/academia for Wall Street. They seek to use their knowledge and education to gain insight into therapeutics and health technology companies. Healthcare-dedicated portfolio managers will sometimes have philosophies that are specific to therapeutic areas/disease, thematic and/or sub-sector specialty.

Buy-Side Research Analyst

Individual responsible for conducting research and analysis on a group of stocks, tasked with identifying which stocks align with their firms’ investment strategy/philosophy. The research analyst does the primary research and financial modeling, a similar role in some respects to a “sell-side publishing analyst.” The research analyst makes an internal recommendation to buy or sell a stock and is responsible for “dotting I’s and crossing T’s” on financial forecasts, company management decision making and updates that will ultimately drive value creation over time at companies.

• Healthcare-Dedicated Research Analysts: Healthcare is one area of the market where specialists exist and even within Healthcare, there are sub specialties; particularly Biotech and therapeutics. Similar to the dedicated Portfolio Manager, the healthcare-dedicated research analyst is focused on identifying secular opportunities for investment. Healthcare sub-specialists can have expertise in science with MD/PhD backgrounds, or industry research experience. Other sub-specialists are knowledgeable about reimbursement and regulatory matters, including FDA and CMS policies. These individuals are using their knowledge and background to identify investment opportunities that others may not have the same insight into.

Investment Committee

While an investment committee is similar in function to a portfolio manager, investment firms do not want to place sole discretion in the hands of one individual for a variety of reasons. These committees are often a mix of portfolio managers and experienced analysts who collectively debate and decide portfolio construction. The individuals comprising the committee debate the merits of investment put forth by members of the investment team, analysts and portfolio managers and serve as a “gate keeper” to new ideas getting into the portfolio and, when identified, decide how to fund them with sales of existing ideas.

Execution Trader

Individual who physically communicates buy and sell orders with trading counterparties to achieve desired portfolio positions of the portfolio manager/investment committee. Increasingly trading is done via electronic execution and so the execution trader role has evolved considerably over the past decade. The execution trader role and responsibility has largely been replaced by computers…NYSE floor traders were an extension of the buy-side discretionary trader, for example.

Discretionary Trader

The individual who has discretion to buy and sell securities as part of a “trading book.” Some hedge funds effectively operate as a single, or multiple “books.” Often, leverage is employed in these strategies and some take market/directional risk while others attempt to eliminate it. Historically, investment banks had proprietary “prop” trading desks where they “traded” (or “gambled”) the firm’s capital. Following the financial crisis of 2009-2010, with government bailouts required to stabilize financial institutions (partially due to losses in proprietary trading), prop trading desks were eliminated and many prop traders went to the hedge fund industry. These discretionary traders are “market participants” in IPO’s, secondaries, block trades, etc. and provide liquidity to banks to get deals done—they are very rarely long-term holders of more than a few days/months.

Types of Investors

Venture capitals are focused on the individuals and the idea of the individuals. In other words, they are focused on people, concept, markets, and execution potential. VC’s seek to fund businesses with strong long-term opportunities in attractive markets where specific individuals with ideas can create value over the long term. They are betting on the individuals to create and develop products/services that can execute against a development strategy that will create value from idea/concept stage to tangible, strategic execution stage.

Growth Equity investors are focused on identifying companies with concrete products/services that need capital to accelerate growth. These are the investors that fund the “market adoption” or growth acceleration phase of a product/service life cycle. Growth Equity evaluates the people, product and market with the path to commercialization and profitability an important piece of their underwriting discipline. Growth Equity investors are looking to help a company get to “scale.”

Private Equity investors are similar to Growth Equity investors, but with a focus on valuation and financial results. Private Equity investors are looking to provide capital to help companies grow but also to help them expand their business. Private Equity generally evaluates the plan that has been successful to date with the funding from VC’s and Growth Equity and seek to replicate the success in adjacent markets, geographies, products, etc. Private Equity is valuation-focused and will look to tangible financial performance to evaluate potential opportunity for the business. Revenue growth is almost secondary to cash flow profile because private equity will evaluate capital structure, including debt, as a way to finance their strategic vision of the company. Private equity will look for valuation “arbitrage” or “opportunity” when evaluating investment opportunities very differently than VC’s and Growth Equity. A textbook example of a PE deal is to buy a business at X’s multiple of revenue with 10% operating margins, invest capital that will double revenue and expand margins to 20% over time, then sell the business at 4x revenue because size and 2x margins are attractive to Strategic Companies, Public Equity investors or other Private Equity firms.

Public Equity investors are those who buy stocks in the public markets. They are focused on the track record of demonstrated success, ability to execute against market opportunities and financial performance. Public equity investors, like private equity, rely on management’s ability to build and execute a strategic plan that will result in improved growth and profitability. Scrutiny on predictability and sustainability is high as public equity investors have thousands of alternatives and liquidity to change investments. Public equity investors are measured on relative and absolute performance which results in a constant evaluation of relative attractiveness of investment opportunities.

Many public equity investors place value on knowing the management teams, as they want a firm grasp on whether or not they are credible and capable of delivering the consistent financial performance they expect. Public equity investors come in many shapes and sizes with a variety of views and opinions on how to create shareholder value. For that reason, it is important for a management team to find and align themselves with shareholders who understand and value the strategy that the management team believes will create long-term value. The easiest way to keep a shareholder base stable is to execute the strategy and deliver financial results at or above the externally communicated plan. When execution falls short, it is management’s track record and credibility that will dictate whether shareholders will decide that the investment proposition remains compelling relative to the alternatives available to them in the market.

Conclusion

Meeting with investors is an important aspect of relationship development with existing and potential shareholders. Management’s highest priority should be to establish credibility with investors and to identify those shareholders who have an investment framework aligned with the strategic and financial outlook of your company. While meetings can be time consuming and seemingly repetitive, there are ways to maximize the efficiency of time invested meeting with investors. At Gilmartin, we work diligently to ensure management is spending time with the appropriate investors to develop relationships and shareholders that are aligned with the company’s outlook. Contact our team today if you’re looking for more advice on how we can help develop an efficient investor engagement strategy.