Five questions with small-cap conference speaker Peter Sidoti
What are the top three macro issues small-cap IROs should be preparing for as they look to the start of 2018?
The top three issues, in our opinion, will be the increasing illiquidity in the marketplace for common equities due to falling trading volumes, the effects of the declining quality and quantity of research coverage throughout the market, and the growing need to target the family office market.
How should small-cap IROs go about targeting new investors?
First and foremost, work with a first-class investor relations person or firm. Attend conferences targeting institutional investors and family offices. And get research from a respected source – even if you have to pay for it.
What tips would you offer to small-cap companies looking to go public?
Pick a good underwriter and understand the process – and remember that everyone in the process has an agenda, some of which are not in line with those of the issuer. CEOs and CFOs understand their own operations and value their own business greatly, but they are too willing to turn over the keys to the process of raising capital to an investment banker. Management must manage raising capital with the same oversight it applies to its business.
How will Mifid II in Europe affect research, both on the continent and in the US? How does this tie into the economics of the research business in general?
Mifid II changes the economics of the research business. The rules in Europe will create greater transparency of trading costs and, as a result, significantly drive down commission revenues for broker/dealers.
Firms in Europe will need to depend upon investment banking operations to subsidize sell-side research more than ever before and coverage will decline across the board, in our opinion.
The difficulties will spread to the US quickly. The Financial Times reports that roughly 76 percent of US fund managers fall under some Mifid guidelines. Even those who are not affected directly will pretty quickly need to explain to consultants and fiduciaries why they do not consider Mifid II rules to be best practice.
Finally, what steps can small and micro-cap IROs take to increase their coverage?
In our opinion, the market for credible equity research coverage will resemble the debt research market in the years ahead. Companies issuing debentures pay Moody’s, Standard & Poor’s and Fitch to rate their paper. We think the same will be necessary in the research market for small-cap equities.
The IR Magazine Awards & Conference – Small Cap 2017 is the first IR best practice event in New York exclusively for CEOs, CFOs, IROs and advisers from small-cap companies, offering you the perfect opportunity to:
• Explore, discuss and debate topical investor relations issues
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• Network extensively with IR professionals from a wide range of industries.
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