NEW YORK - There is no single element that makes your investor relations communications and strategies palatable to the investment community. But two variables - attracting the attention of both market makers and analysts - will help you deliver a four-star plan.
"If [the number of market makers covering you] goes under four, get out and start pounding the pavement," says Mark Foreman, director of Nasdaq Market Services, the Nasdaq Stock Market, Washington, D.C. Market makers can be the bread-and-butter for your IPO and contribute to liquidity - the depth of capital in your stock (Microsoft, for instance, is a very liquid stock).
Foreman was one of a slate of speakers in New York last week who detailed IR business models at a National Investor Relations Institute seminar held in the heart of Wall Street.
Nasdaq, which merged with Amex last month, is rooted in a dealer, rather than auction, market model. Auction markets, such as the New York Stock Exchange, are floor-based and order-driven, have single specialists (who link incoming buy and sell orders and trade from their own accounts) and off-floor trading.
Nasdaq, which is moving toward a hybrid model, is currently based on a dealer market blueprint, which means it is:
- Screen-based and quote-driven;
- Has competing market makers and a continuous order flow;
- Allows capital commitment from multiple firms; and
- Is driven by retail sales, institutional sales and research analysts.
IR may seem like one of the most slippery PR disciplines because of how tenuous the market can be. A slew of factors - including the Internet, mergers and acquisitions, residuals from the Asian economic crisis and the growth of the market (recently there was an unprecedented week during which 1 billion shares were traded every day) - impact the flow of shares.
There are, however, tried-and-true methods that executives can use to rustle up IR support.
Market Makers & and Their Pull
First of all, it's important to understand what a market maker is and does. Market makers, which can include behemoths such as Merrill Lynch and Prudential or electronic communication networks (ECNs) like Instanet, are the baseline of IR.
Market makers compete for investor orders, commit capital, maintain inventories, seek the other side of a trade, trade on both sides of the market, and generate investor interest, according to Foreman and John Jacobs. Jacobs, VP of The Nasdaq-Amex Market Group, also spoke at the conference attended primarily by CFOs and heads of IR firms.
It is critical, Foreman added, that you have a mix of market makers. To determine that, analyze who has committed to buying and selling a specific portion of your stock at any given time.
Your line-up should include national firms, regional firms, boutique and specialty firms and local firms. Wholesalers, which take orders from other firms and carry them out, should also be part of the mix.
One caveat here is that small-cap stock should generally solicit support from regional and local firms.
A good IR plan employs checklists to gauge how a company can buttress the worth of its stock. One method is to bring more market makers to cover your company. Market makers lead to:
- Reduced volatility, allowing others to buy and sell your stock without dramatic price fluctuations;
- A jump in demand, which results in higher share prices; and
- Increased competition, which leads to tighter spreads.
The Role of the Analyst
In the U.S., there are 19,320 publicly traded companies, including bulletin boards and pink sheets, say Nasdaq sources, so getting an analyst to notice your company is not an easy undertaking.
"You're competing for share of voice out there," said Charlie Brown, director of Nasdaq Market Services, "and if an analyst is going to cover a company, he or she is going to want to talk to someone and not have to hunt around."
There are primarily two kinds of analysts: those on the buy side and those on the sell side. Sell side analysts include giants such as Goldman Sachs and Morgan Stanley Dean Witter. Buy side analysts include companies such as Wells Fargo Nikko Investment Advisors and Bankers Trust Co.
A seamless IR team, however, isn't enough to attract analysts, speakers cautioned. Senior management, including your CEO, must be accessible.
"These folks have very narrow time frames [and attention spans] so your CEO needs to make periodic visits."
(Nasdaq, 202/496-2552)
At A Glance: Analysts
$ell-$ide
Merrill Lynch
Salomon Smith Barney
Prudential
Goldman Sachs
Morgan Stanley Dean Witter & Co.
Buy-$ide
Fidelity Management and Research Co.
Wells Fargo Nikko Investment Advisors
Alliance Capital Management
Putnam
Bankers Trust Co.
Source: NIRI