Carving a Path to Reengage Prior Shareholders

Current market conditions and ‘higher for longer’ interest rates have extended the business cycle and created conditions that reward companies based on their fundamentals while exposing those with inflated valuations and inefficiencies brought on by a historically long period of “easy money” policies. Thus, a revival of the stock picker is well underway, ushering in renewed emphasis on filtering companies to find those that are operating prudently, cutting excess costs, right-sizing their debt load, and making the right strategic investments heading into the next business cycle.

This, of course, makes the investor’s job more challenging; choosing the winners and losers can be a time-intensive task. Ongoing uncertainty only complicates the situation. For companies and investor relations professionals, it can be increasingly difficult to ignite the flame that draws in new investors off the sidelines.

Take advantage of knowledge that already exists

While attracting new stockholders will always be important, now is a great time to also put some of the focus on re-engaging prior holders. These investors already know the story. Reframing the investment narrative within the context of current market conditions for this historical shareholder base can result in a lighter diligence process and potentially easier wins for an investor relations team. Investors, too, will appreciate the opportunity to take a fresh look at companies with which they naturally may revisiting during cycle shifts.

Step into the investors’ shoes to re-establish old connections

The best way to target historical investors is to fully understand the key catalyst for the disengagement so it can be thoroughly and thoughtfully addressed. Did the exit have to do with the market conditions at the time an investor sold off? Was there a communication or engagement issue? Disengagements can be due to many factors, from funds reallocating during periods of risk, to company-specific issues, search for lower beta yield, or simply a misalignment with a company’s current strategy or management direction.

By fully understanding the investor’s perspective and evolving needs, IR professionals will be better suited to craft a targeting plan and tactfully tailored re-engagement strategy. Here are a few ways to get a read on past shareholders’ mindset, both then and now:

1. Conduct a performance-driven shareholder base analysis:

Consider the performance of each investor over the respective holding period. Understanding the cost basis and realized returns or losses can provide a layer of insight to track thresholds in conjunction with the investors’ investment . Go a step further and conduct a cross ownership analysis, comparing these metrics to peer holdings. Such an analysis can help better explain allocations across industry peers and why certain investors are underweighted in a company’s ticker. It can also give insight into which investors may be ready to come back to a previous holing or those that may be allocating away from a direct industry peer.

2. Look to prior business cycles to turn up potential candidates for re-engagement:

Take a close look at the composition of the shareholder base during past economic downturns. Who were the investors that stayed when others left? This signals a larger appetite for risk and will help point companies and IR professional toward a few familiar names who may re-engage during similar uncertain or challenging market conditions. It will be essential to tell a story of progress and potential when re-engaging these investors. For example, what steps has management taken to streamline operations, how has the company positioned itself in the market, what are the capital allocation priorities, and how do those align with the investor’s thesis?

3. Maintain and leverage perception study results:

Conducting regular perception studies and cataloging the findings is a great way to monitor sentiment shift over time and to keep track of historical issues that may resurface during re-engagements. Companies with good perception study archives can gain invaluable insight into how well the Street perceived the corporate strategy at any point in time. For example, reviewing perception studies from the last economic downturn or similar macro shifts can provide a refresher of the key pain points for investors who disengaged during that period. These qualitative insights can point to important areas for improvement and communication when re- investors today.

4. Build out a tailored outreach approach:

After completing a shortlist of previously engaged targets, it’s time to map out the right engagement approach. Keep these points in mind:

• Evolve the pitch to the current market conditions while linking to the investors’ overall investment thesis, past motivations, and key points of concern.
• Avoid getting stuck in the past by being sure to highlight progress over the business cycle and fundamental improvements to the companies’ operations and strategy.
• Come prepared with key data points and metrics, for example, how the company held margins during prior downturns and the timeframe it took to recover and outpace growth.
• Provide regular updates and ongoing communication and be sure to include these targets in the normal outreach cadence including post earning calls, conference attendance, NDRs, and perception studies.

5. Bring past investors back onboard for the next business cycle:

Regardless of how robust a company’s CRM or surveillance tool, having a game plan for re-engaging old investors is equally as important as attracting new shareholders, and now is the perfect time to retell the company’s story. Companies that embrace a dynamic and holistic approach to targeting are likely to be rewarded with some relatively quick wins at a time when investors are generally taking longer to research companies and take a position. Further, the work that goes into understanding the historical shareholder base can elevate the overall narrative by resurfacing insights and themes from previous challenging cycles that may resonate with today’s investors and help companies better understand all their holders and current trends.