In February, a report commissioned by the DTI warned that smaller
quoted companies (SQCs) are at risk of being ignored by
institutions.
It cites factors such as the boom in pan-European investment and index
tracking of large companies - now a key marketing tool for large
investment funds - for the lack of interest in SQCs. While the report
says these trends can be combated by improving communications with the
City, financial PR practitioners are taking another tack - targeting
private investors.
In the days of the huge privatisations in the 1980s, some 30 per cent of
shares were in the hands of retail investors, as revealed at a recent
Investor Relations Society seminar. Although this has dwindled to under
20 per cent today, financial PR firms are sensing fresh opportunities to
target the public as a whole with share offerings.
Many financial PR practitioners say that the markets have changed along
with fashions. They argue that large financial institutions, which own
the vast majority of UK shares, will now only look at larger companies
(capitalised at more than pounds 1 billion), leaving smaller companies
to fight for flickering interest from institutions or to target retail
investors.
Alex Mackey, head of financial PR at GCI Focus, says: ’There is the
Godzilla analogy: size does matter. There is a polarisation between the
large and smaller capitalised companies. Smaller cap companies find it
harder to attract larger investors. Institutions are looking for larger
companies with proven sales and turnover growth. There is little
appetite for buy into small companies.’
Mackey suggests that this has led to smaller companies looking
increasingly to private investors. ’If a company capitalised at pounds
50 million is under-invested, it will be appreciative of the input of
private investors,’ he says.
In many cases, it helps if the company targeting private investors has a
prominent retail brand. Holiday operator Thomson, for instance,
attracted a large amount of retail interest when it was floated last
year. Many smaller companies in sectors such as brewing and leisure -
especially football clubs - can also generate interest.
Financial PR firm Financial Dynamics has established a dedicated team to
help small and medium-sized companies target retail investors. Chief
executive Nick Miles says: ’The market is saying that unless a company
is a large FTSE, such as Cadbury, less time will be spent following
it.
We have at least 100 clients that don’t fit into that category, and the
signs are that private investors are interested in mid-cap and
smaller-cap businesses capable of fantastic growth.’
Miles adds that in media relations terms, some companies are ideally
placed to target the retail investor. He agrees with Mackey that
emerging companies in the brewing, leisure or even engineering sectors
can gain strong retail-focused media coverage when planning to float.
’The Financial Times aside, the UK financial media regards itself as the
guardian of the interests of the private investor,’ he says, adding that
the financial pages of these titles are receptive to stories which will
interest the retail investor.
The majority of companies aim to attract around 10 per cent of a share
offer from private investors, but there are incentives for smaller
companies to go beyond this. Retail investors differ from the
institutions in that they do not necessarily want an immediate return on
investment so long as shares perform well over several years.
’Private investors are not interested in the short-term performance of a
company. They are content to sit on shares for ten to 15 years,’ says
Miles. This loyalty can balance out the difficulty and cost of keeping
track of a high quantity of retail investors, although media relations
becomes vitally important if listed companies are trying to keep an
investor loyal for more than a decade.
While fewer shares are in private hands than in the late-1980s, there
has been a trend to encourage the retail investor to take interest in
listed companies. Perhaps the greatest influencing factor has been the
conversion of building societies into banks, involving the handover of
millions of shares to ordinary account holders.
Some 7.6 million Halifax account holders took shares and although many
cashed in immediately, there are still 3.6 million ordinary
shareholders, a high proportion for a FTSE 100 stock. Halifax’s
relationship with its private investors was undoubtedly helped by the
recent news of a pounds 1.5 billion handout to shareholders,
communicated through media relations from Shandwick.
But small investors will never be seen in the same light as
institutions.
’A company secretary or chief executive is not that upset,
post-privatisation, if 50 per cent of private investors get out and
quality institutions get in,’ says Mackey.
Many in the financial PR world have been gearing up for the increasingly
pan-European nature of the markets. Brokers are increasingly looking at
companies in a European context, targeting only the largest companies in
each market for institutional investment. This specific targeting could
lead to many medium-sized companies attracting less institutional
support and turning toward the retail market.
Financial Dynamics is currently receiving feedback from brokers saying
there is a healthy private investor culture on the Continent. ’People
have traditionally put money into bonds, but are now looking more at
equities.
Investors want solid, trustworthy companies they have heard of,’ says
Miles. ’We are gearing up for an investment strategy which will take in
Europe.’
But some argue that these general trends will not significantly affect
the way in which smaller companies attract investment. One City analyst
says: ’There are investor relations issues in being a smaller company,
but it is unrealistic to say that small companies are likely to be
wholly owned by retail investors.’
Levels of ownership in the retail sector may further increase if the
Government pushes ahead with proposals to privatise the Tote and Air
Traffic Control services. While these listings would not be on the scale
of British Gas, they could attract considerable retail interest.
Private investment levels may never return to the highs of the 1980s,
but financial PR practitioners believe that it is time the retail market
was further tapped. As SQCs find it increasingly difficult to attract
institutional support, the private sector may well become a crucial
factor in their survival.
NOMURA: PUBLIC FRENZY TO BUY INTO BOOKIES
Last month, Nomura made a last-minute decision to cancel the proposed
flotation of William Hill, the bookmaker, which it bought late last year
from Brent Walker for pounds 700 million. Instead, it sold William Hill
to venture capitalists CinVen and CVC Partners for pounds 825
million.
The move disappointed many punters who had decided to back William Hill
by applying for shares if the company went to flotation. More than
100,000 small investors were willing to part with their cash.
Interest in the offer was generated by Financial Dynamics, which
recognised the powerful appeal of the William Hill brand to
consumers.
’It was decided there would be an intensive press campaign but not
television advertising,’ says Andrew Dowler, a partner at FD. ’William
Hill has 138,000 telephone customers, and direct mail was used to target
them,’ he adds.
FD’s media relations activity was unusual for a flotation because it
focused on conveying messages through tabloids such as the Sun as well
as the heavyweight financial pages. ’Our message to people was ’why not
share in your losses?’,’ says Dowler. FD explained to punters that even
if they lost money backing horses, they could win some of it back by
investing in William Hill shares.
Dowler says that as a rule of thumb, a return of pounds 50 million from
private investors would be seen as adequate on an offer of William
Hill’s size . As it was, the offering attracted four times as much, with
225,000 consumers registering for share forms, and some 100,000 of the
forms being completed.
The success was fed by broadcast news coverage on major television
channels and Radio 5.
Financial Dynamics was then faced with the task of telling these
potential investors that the flotation had been pulled. ’We had 36 hours
to work out how to communicate the pulling of the flotation,’ says
Dowler. ’A vast number of people had written out cheques and were hugely
disappointed.’
The media relations message for disappointed consumers was conveyed on a
pounds 20 betting slip, which was sent out to all those who had applied
for the shares.
