There's no one easy way for a European company to reach and attract US investors. But there are some sound principles that ought to be observed.

The golden rules for reaching US investors
It’s well known that the US market presents European companies with a chance to tap the world’s largest and most diverse pool of capital.

The market’s size is hard to miss, but it usually takes time—or an IPO—to appreciate its diversity.
There’s no secret roadmap that will show you the way to reach US investors. Every company finds its own path but I’ve seen three imperatives emerge from stellar programmes.

First, and most critically, the CEO or CFO must wholeheartedly endorse the IR effort. Without this, an IR programme cannot flourish. Second, companies must expand their relationships with the investment community. Third, they must understand the US market and what’s driving it.

Doing this can erase the notion that there is anything “foreign” about your company in the eyes of US investors. But there are a number of other useful actions that should be considered. For instance, even if you’re just getting active in the US, the chances are your company already has investors here.

Advisers can help to identify who they are as closely as possible in real-time. Public disclosures
are also helpful but often incomplete: US filings appear 45 days after quarter’s end and institutions can seek exemptions for non-US holdings.

Moreover, mutual funds report on a much more uneven basis. There is nothing more frustrating than receiving a message from a new shareholder that was inadvertently left off your most recent roadshow.

As you develop investor relationships, formulate an annual plan and be consistent. Your day-to-day responsiveness will demonstrate the company’s commitment to the US market. For most IROs, this means a longer working day, while some consider help from an adviser or even a US-based, in-house IRO as well.

Companies that start a US programme but don’t follow up for several quarters can squander hard-won momentum and find it hard to recover.

This isn’t the place to review US regulations. However, it is worth remembering that your IR activities stateside will be shaped by the market practices related to those rules, whether you’re listed in the US or not.

Although non-US firms do not have to comply with Regulation FD (see glossary, back cover), those that perform as if they were covered by the rules will clearly be favoured by US investors. This includes open and archived conference calls, press releases about all material information, and no preferential treatment for institutions or analysts.

The final imperative – knowing how the US market ticks – is demanding, but can be shaped directly by the IRO. Despite converging markets, the investment themes that drive the US and European markets can differ substantially.

The most effective means of targeting US investors combines a qualitative and quantitative approach. It’s precisely what investors do when buying your stock. Effective targeting starts with understanding investors’ perceptions of your sector, your peers, your company and its management.

This takes time but qualitative tools exist to match your company’s current and expected financial performance with institutions that hold your sector peers or firms with similar financial characteristics.

The giants of the US fund management industry - firms managing more than $50bn in assets - probably already think they know you. But the mid-tier market in the US is twice the size of the giants, while there are ten times as many smaller firms as mid-tier ones.

The proliferation of US hedge funds skews the meaning of all of these ratios. In fact, many so-called “traditional” investment firms manage hedge funds and it’s quite misleading to view hedge funds simply as inflexible, high-growth investors.

Smaller institutions often have a much longer-term investment horizon than their larger peers, they are more streamlined, and put senior management in direct contact with the decision-maker. They can also diversify a shareholder base if your stock is too concentrated in the hands of several large holders.

Without a dedicated international unit, portfolio managers at mid- to small-tier US institutions may be less aware of global stocks than their peers at larger firms.

They may need to be educated about your sector and country, unless you are part of a global industry such as automotive, telecoms or oil and gas. But once they invest, they are often loyal holders.

Two practical thoughts in closing: investors gravitate to companies whose materials illustrate a compelling equity story and are easy to use. And while many companies are complex, investors have only one hour to figure out how yours works.

John McInerney is an independent consultant based in New York. He has advised more than 70 European firms from 18 countries. He can be reached at jtmcinerney22@aol.com

What does a US audience want?
A US-based fund manager, financial reporter, IR consultant and equity analyst explain how to make your mark in the world’s biggest market.

The fund manager
Craig “Chip” Bailey, managing principal,
Westbourne Capital Management
UK companies do a better job of reaching out to US investors than continental European firms. Generally, the information presented is clean, simple to read and easy to decipher.

Presenting figures in a consistent format is helpful. US reporting standards make it difficult to decipher the numbers, so non-US firms that follow US standards at least avoid adding further complexity.

Many companies still don’t have IR meetings in the US, which is a shame (although webcasts are
a godsend). It’s amazing what you can pick up from an hour-long chat about the corporate culture of a business, the processes by which it is managed and its ability to respond to upcoming challenges.

But the CEO or CFO don’t always have to be on show. I’m more than happy to meet with the head of investor relations. Great IR people are often terrific analysts: they understand the internal dynamics and are not polarised, as the CEO or CFO might be, into strategy or finance.

But where an IRO sits in the information food chain - and how good he’s allowed to be - says a lot about how the IR function is viewed. I look favourably on companies that embrace the role of IR.

The financial journalist
Greg Zuckerman,
The Wall Street Journal
If someone has an interesting idea, I want to hear it. I rely on personal contacts rather than trawling through web sites. I get information from Wall Street traders, bankers, investors, usually in face-to-face meetings.

I am looking for information that is not yet in the market or, at least, not yet appreciated or fully understood. European companies wanting to raise their profile should approach the media directly, schedule in a one-on-one, and then come and talk about the business, the prospects – give it your best pitch.

A smart email goes a long way – one that’s pithy, well-written and not overdone. As with everyone else, I get hundreds of emails a day and am generally looking for reasons not to delete. Journalists can see through hype, so an understated email will be appreciated far more than one that goes overboard.

If I was contacted by a company that I hadn’t heard of before, I would start by doing research online, as well as talking to experts in that industry. I would want to know who the company’s executives are, and more about their backgrounds.

That is more of an issue for lesser-known, second-tier companies. The larger European firms, the Siemens of this world, are very much treated as if they were based in the US.

The IR consultant
Brian Rafferty, MD
Taylor Rafferty
In terms of corporate governance, European companies are expected to be on a par with their
US counterparts, and at a higher level of compliance compared with companies in emerging markets. All portfolio managers are suffering from information overload.

Time constraints tend to prevent them from delving into the details of corporate governance. As a result, many US fund managers are not able to engage on a very sophisticated level on specific corporate governance issues.

Many rely on organisations such as the Institutional Shareholder Services (ISS) to help rather than plough through the details themselves. It would essentially be a tick-in-box exercise.

That said, executive remuneration is one area that could come under heavy scrutiny. I’m not talking about the actual amount but rather the structure of the package – the alignment of remuneration to promote good performance with shareholders’ interests.

The existence of disparate voting rights might also be of note, although in that situation, the market price has usually already been adjusted accordingly.

Non-financial information, in its broadest sense, is crucial for US investors. Geographical constraints mean they have distant and episodic relationships with non-US companies, which makes it much harder to follow good corporate stories in Europe.

The more an investor can see the consistent pursuit of a value-building strategy over time, the better. The financial data should just act as proof points.

The equity analyst
Dan Roberts, director of active investments
TIAA-CREF
European firms looking to increase US sell-side coverage or their shareholder base must give US investors enough information to make a decision. This should include material based on a company’s valuation, strategy and future prospects.

A good management team prepared to invest time in communicating this message to the equity markets will always have an audience.

The strategic direction that a company is taking must be articulated well and in such a way as to gain the confidence of the market. The revenue opportunity has to be put into context with the competitive environment, the investment required and the eventual targeted returns.

In terms of financial communications, European companies have improved on disclosure but they are still some way behind the US. The fact that quarterly reporting is not as prevalent in Europe is arguably not always a bad thing – often too much focus is given to the quarter in the US and not enough to the longer-term issues.

Companies should avoid posting continuous restatements of historical financial information – there’s nothing more frustrating. Those firms based in continental Europe should also simultaneously publish press releases and annual reports in English as well as the home language.

One-on-one meetings are still the best way for a company to state its investment case – to allow analysts and fund managers to develop a greater understanding of its recent performance and future prospects.

But in terms of measuring sentiment towards a stock, it can also often be as valuable to sit in on group meetings in order to hear the questions and concerns of other investors.

Getting your messages across
Far from insular, fund managers in the US are happy to look overseas for a good news story and a new investment. But dealing with a market based thousands of miles away is not easy. Here are some of the methods at your disposal.

Teleconferences
These are best used following events that generate a lot of questions such as M&A or management change. “They are an effective use of management time as the vast majority of questions can be answered in one hour. Answering them serially in one-on-one calls could take all day,” says Gordon McCoun, director of IR at consultancy Financial Dynamics.

They are a practical solution to the logistical barriers and allow all callers to receive information simultaneously. “By the time you have arranged a face-to-face, the news is old and investors have moved on,” says McCoun.

Telecons should take place as soon after a news release as possible. A late afternoon announcement in Europe followed by the call will catch US investors early in the morning.

Roadshows
Roadshows are a useful means of establishing face-to-face contact with US investors but deciding who should appear requires careful consideration. Major financial centres and larger institutions are used to meeting with CEOs, whereas their smaller counterparts may be happy to talk to the FD or IRO.

Cultural differences also apply, despite the global market, advises Financial Dynamics’ McCoun. “US investors feel like they own the company and see the management as the stewards. That means they don’t dwell on ceremony and can be less respectful and more aggressive in their line of questioning.”

Roadshows are also the best opportunity to secure the vast number of investors “who are not globally focused and for whom the political, social and economic differences that could affect a company’s market will not be intuitive,” says McCoun.

It’s therefore important that you ease their understanding. Post roadshow, it is vital to maintain contact whenever possible and get feedback on whether the right subjects were touched on.

Websites
Don’t try to reinvent the wheel. There is nothing to be gained from ignoring best practice when putting together a website that will be seen by potential investors globally, says Peter Kemp, MD of web design firm Global IR.

The first priority is to make sure you have a decent corporate profile and plenty of detail about the management team that is easily accessible. “Then it’s all about confidence,” says Kemp.

“Once you’ve worked out the market and explained the business, it’s down to how much confidence you have in the team and their track record.”

Alongside these prerequisites, a site should have a good notification system and a very clear financial calendar, again with alerts. To increase profile, Kemp suggests a link through to the major shareholder clubs such as Yahoo Finance, popular in the US, which is easy to do provided that you can get permission.

And watch out for legal obligations. At times – during a rights issue for example – information may be barred from the US, making it essential to use gateways and disclaimers.

Online video
Given that the website is the first port of call for most investors looking for potential investments, the trick is to increase the added value of the site. In this context, webcasting can be an incredibly valuable tool.

As Lucy Parker, CEO of online video communication advisor Cantos, points out: “Webcasting presentations provide equal access for the US. Stepping up a level to interviews allows US visitors to ‘meet the management’, more like a one-to-one.”

Companies using Cantos are increasingly producing in-depth interviews not just with the CEO or CFO but also featuring divisional management whom US investors may never otherwise meet. In this way, the interviews become a tool to keep up a flow of additional quality information to investors.

They also act as an effective background briefing for investors when IR directors do US roadshows alone. With everyone now more confident with video online, companies are turning to investor documentaries, which bring the business alive on camera like a “virtual” site visit.

There is double value to be had by playing the video live into investor seminars and releasing it online simultaneously. For example, Parker cites SABMiller’s Cantos-produced ten minute documentary on its Polish beer business or Invensys’ case study of progress in the turnaround programme at its process systems business IPS. Both firms use online video to communicate with existing shareholders and to reach out to potential US investors.

Lessons from the pioneers
IROs who’ve made a splash across the pond offer their advice.

Steven Day, director of corporate affairs, Virgin Mobile
“Virgin Mobile’s float was one of the largest on the London Stock Exchange in 2004. Given its size and the global interest the float attracted, it was natural to include the US in the company’s roadshow. An IPO is a one-off event; there’s nothing quite like it, and it’s far more time-pressured than other scheduled investor meetings.

“With Virgin’s IPO, there was no question of having to win buy-in. There was general agreement between the company and our bankers to try and see as many relevant potential shareholders as possible – in a highly compressed period of time.

"You can’t underestimate the value of face-to-face contact. During the IPO, the roadshow was often the first time investors met our CEO, and heard the company story. It’s like buying a house – first impressions are incredibly important. Of course, not everyone we saw bought stock but the company has laid firm foundations in the US in terms of building relationships.

"There will be another trip there at year-end, without any of the IPO pressures this time, and with Virgin Mobile’s figures having preceded us.

“US investors are charmingly, and disarmingly, direct. They get straight to the point – with the point varying, depending on who you’re talking to. They are focused, and like their European counterparts, highly professional and exacting.

"There seemed to be no distinction between investors across different parts of the US but that may have been a personal impression left by the relentless nature of the IPO roadshow, which is literally bed, transport, meeting, transport, meeting, until bed – day after day; city after city.”

Stefan Gruber, head of investor relations, SAP
“SAP listed on the NYSE in 1998. We set up our New York IR operation in late 2000. There was no debate about creating a permanent presence in the US; it is the largest market for IT spending worldwide, with many of our peers located there.

"It was simply more practical to be based in the same time zone as analysts and investors. Overall, I have found US investors open, accessible and happy to share their perceptions of the company. In our industry, their level of sophistication is very high.

“We have a global approach to IR at SAP so our challenge is to speak with one voice to all audiences. US brokerage firms tend to split their research efforts between Europe and the US. This can be frustrating as it’s hard to get the full picture to come across. Having a New York office has helped to give us a better indication of what US investors think of SAP.

"You can’t get that sort of insight through reading the Wall Street Journal. We are conscious that all our IR team members must be equally informed on company developments wherever they are based. We have regular conference calls to keep everyone up to speed.

“New York is the US financial hub but in secondary money centres such as Texas we have met investors who hadn’t come across SAP. They give you a good reception if you make the initial effort.”

Peter Reynolds, director of investor relations, Rank Group
“We have gone to the US for a number of years, so it is quite a well-trodden path. We try to approach institutions that are interested in other UK gaming companies and also follow up recommendations from our stockbrokers and IR consultants.

"But no-one’s going to invest in your company based on one visit. We are fortunate in having a number of businesses in the US and a lot of operations, so getting the CEO or FD to invest the time to make a trip is not an issue. I am probably over there three to four times a year.

“US investors tend to focus on the big picture and are less interested in the minutiae. While UK investors might want to talk through current trading division by division, US investors tend to focus
on the bigger strategic decisions.

"There are some very smart hedge funds in the US and I’ve had some good meetings where they’ve clearly spent time investigating the company thoroughly.

“I wouldn’t say there was a right or wrong way to approach the US. Just be aware that it’s a long haul. You have to keep banging on the door to make yourself heard because there are a lot of companies and only so many hours in the day.

"The success of any strategy, as with IR in general, is also incredibly difficult to measure. If things are going badly, it reflects poorly on IR; if things are going well, it’s hard to attribute that success to the way in which you approached US investors.”

Jargon buster
ADR: American Depository Receipt. A dollar-denominated certificate that represents ownership of shares in a non-US company.

ADR – Level one: the most lightly-regulated way for non-US firms to reach US investors on home turf. Level one ADRs are traded on the “over-the-counter” market.

ADR – Level two: Allows trading on a US?exchange. Firms must reconcile accounts with US GAAP and meet the exchanges’ listing requirements.

ADR – Level three: A full public offering and listing of a non-US stock on a US exchange.

ADS: American Depository Shares. Underlying shares traded via ADRs.

EDGAR: Electronic Data Gathering, Analysis, and Retrieval system.
All companies must file their announcements and reports via EDGAR.

ECNs: Electronic Communications Networks. These allow companies’ shares to be traded outside main exchanges, offering additional liquidity. ECNs include Archipelago and Island.

Reg FD: FD stands for “fair disclosure”. It means that all US issuers must disclose all material information simultaneously to all investors and the public. Non-US firms don’t yet fall under its remit.

SOX 302: Under this Sarbanes-Oxley rule, CEOs and CFOs of all
US-listed firms must certify their annual and interim SEC filings.

SOX 401: The SOX rule covering disclosures in periodic reports. Firms must disclose off-balance-sheet arrangements that have, or are likely to have, a material future impact on the business.

SOX 404: This SOX rule covers the assessment of internal controls. Management must report annually on its responsibilities for internal controls and financial reportings – and on their effectiveness.

SOX 409: This section of SOX covers “real-time issuer disclosure”. It obliges firms to disclose clear information about material changes in their financial condition or operations on a “rapid and current” basis.

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