Private dealings: As institutional investors focus on the FTSE 100, PR firms are sensing that the private investor has a powerful role to play in the finances of smaller cap companies

In February, a report commissioned by the DTI warned that smaller quoted companies (SQCs) are at risk of being ignored by institutions.

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.



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