“The market is missing things, and we are not at our true value” is a common refrain we hear from company executives, both public and private equity-backed. Investors may not fully understand a small, but growing part of the business or the true economics of a mature business but there is a gap between what those closest to the situation and the market believe.
The reasons for the value gaps, perceived or real, may vary, but we consistently find that they are rooted in the same challenge. Ultimately, most companies struggle to effectively translate their strategic plan and key performance indicators (KPIs) into a digestible narrative leaving their investors without the information to get a strong conviction in the investment case. In industries that have significant cyclicality or are currently out of favor, highlighting how a company is performing relative to a group of close peers is even more challenging and evermore crucial to achieving an appropriate valuation.
The operating environment for companies is as complex as it has ever been and continues to evolve in ways that increase demands for transparency across business operations, financial planning, and strategy. This changing environment has increased the demands on, and value of, effective investor relations and strategic communications. The fundamental role remains the same—investor relations engage with the internal and external stakeholders to increase awareness, improve credibility, close the valuation gap, and attract new investors. However, a key difference now is that the story investor relations convey must be in lockstep with the company’s comprehensive strategic and operational plans to help reduce the inherent complexity. In short—the goal should be to connect the dots to make it as simple as possible for others to see the opportunity as you see it.
Step one towards this goal is integrating investor communications with the financial planning and analysis (FP&A) or equivalent function. The groups responsible for planning and forecasting and the communication of the strategic message share a symbiotic relationship, where each benefits from their collective knowledge. The FP&A function is responsible for management reporting of the company’s current and prospective financial performance, including analyzing the impact of the current market environment and results under different scenarios. FP&A, or equivalent, builds and operates the company’s budget and long-term financial models (one and three to five-year plan) to inform capital management as well as projections of the company’s financial outlook. The reporting provided by FP&A is a critical input in determining the appropriate company narrative for investor relations to communicate. Further, investor relations can provide material feedback to FP&A on market expectations and the competitive landscape, which is valuable in helping FP&A to refine its modeling and KPI reporting.
So, what are the benefits? First, you have an investor story that is aligned with the company’s strategic plan and financial projections. Second, you have market intelligence that helps to inform your company’s short and long-term planning and a feedback loop that aligns expectations and awareness to manage any divergence that may arise. This helps build trust and credibility with investors and ensures that they have accurate and reliable information to make informed investment decisions. Additionally, by working together, these teams can identify areas where financial projections may need to be revised or updated based on investor feedback or changes in market conditions. When executed well, this can also lead to improved capital management, which includes a better picture of what capital sources are available, and at what cost, at any given time.
Creating a compelling investor narrative has never been particularly easy, but it is certainly more complicated today. An outsider’s perspective can help fill in the big picture with the right puzzle pieces. Our experts have multi-disciplinary expertise across a myriad of industries and capital markets to help you articulate the investor story you should be telling.
About Ankura Capital Markets Communications & Strategies
Our experts provide strategic communications counsel around transformative transactions and liquidity events. Our team of professionals works with management teams and BoDs to support their companies’ investor relations strategies and ensure clear communication, maintained credibility, improved public perception, and reputation with investors and sell-side analysts, and other key stakeholders. The Ankura Capital Markets Communications & Strategies team has a long history of developing and executing best-in-class investor relations programs and supporting investor community engagement efforts. We tailor our solutions to meet each client’s unique situation and ongoing issues.
© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
