While it may not be the first thing you think about when planning for a merger or IPO, sooner or later, your company will need to tackle investor relations. Read on to learn the basics of the investor relations role.
What Is Investor Relations?
Investor relations is a part of public relations that has existed for as long as companies have been traded publicly. Investor relations (IR) has become more important in the last 20 years in the wake of the Sarbanes-Oxley Act, which mandates reporting for public companies.
Investor relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company's securities achieving fair valuation. While IR is similar to public relations in that it focuses on communication, it differs from public relations in its purpose, which is to help investors make appropriate decisions regarding buying or selling of company stock.
The Importance of Investor Relations for SPACs, IPOs, and Mergers and Acquisitions
While IR deals with the communication around a company's stock, it is critical to begin thinking about IR before a company goes public — thus, during the SPAC, IPO or M&A period. IR needs to go hand in hand with the path toward taking a company public, regardless of the method chosen for doing so. The reasons for this include:
- Transparency: IR professionals can understand any potentially negative information ahead of time so they can manage it.
- Compliance: Involving IR people from day one can assist with regulatory and compliance elements of the process.
- Consistency: Mergers, IPOs or SPACs benefit when communication is consistent across the board — for instance, between the company and its employees and the company and its stakeholders. IR professionals can ensure consistent communication at every step in the process.
- Relationship building: Most critically, onboarding IR professionals early in the process streamlines relationship building.
How IR Professionals Can Help
Many companies have IR professionals on staff, but these professionals may operate a bit differently from business to business. Regardless of the day-to-day operations, most investor relations strategies tend to focus on communications with executive leadership and key stakeholders, which include investors.
Leading to taking a company public, many IR personnel obtain relevant information about company finances for shareholders. The CEO and CFO will not have to spend time responding to every information request or due diligence when there is someone in IR who can handle these sorts of requests.
An IR professional might demystify market behaviors for executives, which helps executives effectively tell the company's story in a merger or woo investors leading to an IPO. After the company is publicly traded, an IR employee can put information in perspective whenever there is business news, for example, whenever earnings are released.
If there is a gap between the company earnings and valuations, an IR professional can address it in public forums or perform outreach to understand from where this valuation gap is coming. In obtaining this information on the company's behalf, IR professionals can help companies become better at communicating their value to investors.
When the company is changing direction or product offerings, the IR professional can help with the positioning of this information for the general public. This can be invaluable when the company is forced to pivot or has suffered a setback vis a vis its competitors. Obviously, not every corporate story puts the company in its best light and there are times when market forces suppress value across the board. The right IR professional can help to position this information effectively to minimize the shift in investor opinion as a result of the negative market news.
While IR professionals contextualize market and company news, they can also pre-emptively assist with investor perception. Strategic IR includes collecting and analyzing company and industry information ahead of time. Doing this helps IR professionals communicate key information to investors within the context of company history, market sector or industry trends. This can help investors understand where the business falls within its market sector and make effective trading decisions.
What Makes a Good IR Professional?
Now that you understand the importance of IR professionals and how they can help during a SPAC or IPO, what makes a good investor relations professional?
- Strong understanding of corporate finance: IR professionals must understand corporate finance to effectively do their jobs.
- Data analysis: IR professionals will typically communicate information verbally and visually, so strong data analysis skills can help.
- Clear communication skills: IR professionals are constantly communicating with stakeholders, so they need clear communication skills.
- Attention to detail: Attention to detail is what sets apart top-quality IR professionals, as it helps them understand nuances in complex financial information and communicate accurately to a range of investors, employees and financial professionals.
IR professionals can make or break the way investors and potential investors perceive information about your company before, during, and after the IPO or SPAC. It is critical to vet and select the right people for this important task.
DFIN supports investor communication with data discovery and analysis tools. With DFIN's EDGAR® Pro platform, you can gather information presented in SEC filings for competitive intelligence on the market sector. The ability to collect and analyze information not just about your company but about your industry as a whole can benefit IR initiatives. To explore other ways we can help, contact us.