On Thursday, March 21st, the National Investor Relations Institute (NIRI) held the webinar “Navigating Capital Markets and the Macroeconomic Landscape” with moderator Rose Sorensen (Partner, Snell and Wilmer) and panelists Alysa Craig (M&A Managing Director, Stifel), Paul Burgon (Managing Partner, Exit Ventures), and Pavel Molchanov (Equity Research Managing Director, Raymond James). The webinar discussed monetary and fiscal policy in 2023 and 2024, capital raising and allocation strategies, and company messaging to stakeholders amidst the tough macroeconomic environment.
Moderator: Rose Sorensen, Partner, Snell and Wilmer
Speakers:
- Alysa Craig, Managing Director M&A, Stifel
- Paul Burgon, Managing Partner, Exit Ventures
- Pavel Molchanov, Equity Research Managing Director – Energy, Raymond James
Key Takeaways:
Macroeconomic Overview – 2023 Monetary Policy Recap and Positioning for 2024:
The NIRI webinar commenced with discussion from panelists on monetary and fiscal policy in 2023 and expectations heading into 2024. As for monetary policy, Pavel Molchanov pointed to a brief flash of optimism in December 2023 surrounding the belief that the Federal Reserve would begin to cut rates immediately (given inflation was cooling and the treasury yield curve showed a sharp compression). However, in the last 100 days, we have seen inflation come in higher than anticipated at roughly 3.1%, and the Fed is not expected to start cutting rates anytime soon (though Molchanov believes that they are signaling rate cuts in 2H24). Turning to fiscal policy, panelists believe that the Presidential election will not be enough to bring about meaningful change and that we should instead turn our focus to the two houses of Congress. The view from the panel is that we are likely to have a divided government, with one party controlling the House and the other controlling the Senate. Investors have traditionally favored a divided government because the circumstance limits the possibility of drastic policy changes in one direction or the other.
Capital Raising Strategies – Equity, Debt, and Alternative Vehicles:
In evaluating capital financing options, panelists emphasized the importance of management and investor relations teams carefully considering pros and cons. In the current macroeconomic environment, it is a necessity to create a strong and flexible capital structure, with a balance of short-term and long-term capital proving to be advantages for a company. When considering equity or debt, management should assess the financial impact of different capital, including equity dilution and fixed income leverage/coverage ratios. For an all equity fundraise, a Company will need to generate returns on shares for the foreseeable future and assumes large responsibility to drive long term value. On the other hand, with debt, one can achieve significantly higher equity returns once it is paid off. Paul Burgon spoke to both sides of the debate, ultimately recommending a balance of both equity and debt to optimize short-term and long-term benefits. Burgon also encouraged companies and their investor relations teams to explore alternative financing vehicles, given that there are now several additional broader options, including government grants, infrastructure bonds/funds, and customer financings.
Company Messaging – What Investors Remain Focused on Amid the Tough Macroeconomic Environment:
In addition to carefully assessing capital raise options, panelists believe that management needs to be deliberate in reassuring stakeholders and shareholders of major capital allocation decisions. It is important for investor relations teams to externally message how they created their capital allocation plan and any related flexibility. Overall, the speakers emphasized that transparency builds trust, which can even mean engaging in discussions with investors on a company’s contingency plans should the macroeconomic environment worsen. In times of uncertainty, investors want to see companies focusing on strengthening their balance sheet while managing their growth at the same time. Alysa Craig indicated that investors will primarily focus on a company’s existing balance sheet, and messaging largely depends on the size, market cap, stage, and capital needs of a company. For more mature companies, Craig argued that messaging should center around projected confidence, specifically on the company’s ability to perform (or outperform) in a higher interest rate environment. For smaller companies, displaying a level of confidence is still important, but investors will want to learn about what capital a company has in the near term and how they plan to utilize it. Specifically, small cap companies should be communicating the lifespan of their resources, sources of incremental capital, their ability to hit key milestones while managing uncertainty, and liquidity in the stock. Ultimately, the speakers were insistent upon being transparent and confident when speaking with external stakeholders to build a certain level of trust and credibility.
ESG – Driving Growth:
To end the webinar, the panelists were asked the question: “How do we invest in sustainable measures that are also good for our growth?” Paul Burgon noted that ESG is often overlooked, but that investing in sustainability can be an important part of demonstrating confidence and responsibility for one’s business. He stressed going beyond the minimum compliance requirements and thinking creatively to develop a strong, proactive, and offensive sustainability investment program to drive a competitive advantage over other companies. Moreover, Molchanov pointed to ESG importance in labor standards of an enterprise, which can drive how a company addresses human rights, diversity, and engaging with unions and employees.
Gilmartin Group has extensive experience working with both private and public companies across the LSTDx, MedTech, Biotech and Digital Health spaces. To find out more about how we strategically partner with our clients, please contact our team today.
Authored by: Gabby Gabel, Analyst, Gilmartin Group