What is Investor Relations And What is Its Significance?

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. In addition, public companies also have to manage their requirements as they pertain to Regulation FD concerning providing disclosures to all investors simultaneously, as well as pressure surrounding ESG reporting. At the same time, investor research has become increasingly driven by digital and artificial intelligence technologies. This all means there’s greater importance on having strong investor relations practices in place.

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 information, 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 team 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 a company's information in perspective whenever there is business news, for example, whenever quarterly 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 your company's latest 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.

Modern Investor Relations in a Digital and AI-Driven Environment

Advancements in technology have made investor relations both easier and more challenging in various ways. For example, AI can provide quick summaries of 10-K forms, annual reports, and proxy statements to simplify research. Inline XBRL and structured reporting enable documents to be searched for pertinent details with greater speed and accuracy than reading through them with human eyes.

On the other hand, automated comparison tools also mean there is increased scrutiny of a company’s ESG reporting. Factoring in social media monitoring, and there’s a much greater need for companies to ensure they have consistent messaging across all digital channels.

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.

Compliance and Regulatory Considerations in Investor Relations

It’s important for publicly traded companies to pay close attention to all the risks they face when it comes to investor relations. These include Regulation FD, which requires companies to make disclosures to all investors at once rather than selectively doling out information. Companies found to be involved in selective disclosures may be at risk of regulatory issues.

Other aspects of investor relations that require careful planning and consideration include being aware of insider trading windows and earnings blackout periods, as well as ensuring safe harbor language in included within forward-looking statements.

Investor Relations Best Practices

Although investor relations can be messy if a company doesn’t approach it with care, the good news is that following some basic best practices can remove a significant amount of risk. These include:

• Establishing consistent equity narrative
• Aligning messaging across SEC filings and presentations
• Monitoring analyst coverage and valuation gaps
• Maintaining up-to-date IR website
• Conducting post-earnings sentiment analysis
• Ensuring Regulation FD compliance
• Standardizing executive messaging
• Tracking ESG disclosure alignment