Business development companies and a good public relations strategy
INSIGHT ARTICLE |
The following content was first presented at the 7th Annual Trends in Business Development Companies Event held at Nasdaq on June 12, 2018.
How a good PR strategy can de-activate an activist investor
In today’s hypercompetitive business environment, no company is immune to an attack by an activist investor. Last year, activists targeted 805 public companies, a 41 percent jump from 2013, according to Activist Insight, a supplier of information on activist investing worldwide.
Increasingly, these attacks are not because the activist believes the stock is undervalued. Instead, many campaigns arise from a belief among activists that a particular stock would be worth more if the company would just follow their advice.
This means that companies must be constantly and closely attuned to investor sentiment in order to communicate effectively with shareholders and potentially dissuade an activist uprising, said Moira Conlon, founder and president of Financial Profiles, a strategic communications firm, in an address at June’s Nasdaq Marketsite conference.
“Nine out of 10 times, when we look at the situation, what we see is an investment story that hasn’t really been well told,” she said. “There’s really not a clear investment thesis a lot of times. There’s not any conversation about how value is being created.”
Conlon said the real solution to activist investors is making sure that you’ve got a good strategy for telling your story and for engaging investors in the first place. For business development companies (BDCs) in particular, a successful investor relations strategy starts with a coherent message and story.
For the most part, notes Conlon, the market tends to lump all BDCs together. The reality is that every BDC has a different story.
“I think historically BDCs across the board have not done a good enough job talking about things like long-term growth strategy, value creation, shareholder alignment, and returns,” Conlon said. “I think they’ve gotten much better over the past 10 years or so, and that’s a great thing. But I also think that messaging and storytelling will be even more important going forward, as BDCs become eligible to get capital from more institutional investors.”
In terms of executing on an IR strategy, Conlon said that case studies are one of the best opportunities to talk about your company’s platform and how it works, starting with your origination capabilities, your relationships, the kinds of loans that you invest in, the asset classes, and, of course, the outcomes.
She adds that BDCs should not be shy when it comes to tooting their own horn, especially when talking about the vital role they play in economic growth, job creation, and overall contributions to society.
Another way that BDCs can get their story across is through video. Conlon said savvy companies are increasingly using video to showcase key aspects of their business and give the Street and other investors a quick sense of their company culture, including who their people are, what they do, and what they stand for.
Conlon is also a proponent of press releases, but she said they need to be deployed strategically. “BDCs are not like Starbucks,” she said. “They don’t have a new latte to announce every day. Press releases are a precious opportunity, so we recommend that our clients always ‘make hay’ with them.”
For instance, instead of just announcing that, say, Mary Smith has been added to your board, use the press release as an opportunity to trumpet your commitment to best-in-class corporate governance, a diverse board, and shareholder alignment.
Conlon adds that BDCs also need to speak to two classes of investors: the institutional and the retail. She concedes that getting through to retail investors is challenging, but not impossible.
“First of all, having a really great website, being retail-friendly, is key,” she said. “Make it easy for retail investors to get information, to get the story. Highlight your dividend, all that good stuff.”
And she notes that BDCs often work with retail-focused firms like Wells Fargo or Raymond James that have programs in place for marketing to retail investors. She said these firms are often willing to share their expertise. It’s just a matter of knowing what’s available and asking for it.
“It all comes back full circle,” Conlon concluded. “Having good IR and PR can really help you, both on maximizing the upside and mitigating the downside.”