Achieving Your Optimal Valuation: Tell the Right Investment Story to the Right Audience

Valuation gaps among peers are closing. In the current macroeconomic environment, it’s natural for the C-suite and board, as well as investor relations teams to feel pressured by declining share price value. But best-in-class leaders will also recognize the unique opportunity to set their organizations apart. A compelling, long-term growth narrative that is both comprehensive and attainable elevates the perceived terminal value of the business and inspires greater confidence among shareholders. This makes a company’s investment thesis the key to elevating the business’ communications, and in turn, valuation despite the current macro climate.

However, getting the narrative right is often much easier said than done.

Success lies in the nuances

While management teams and IROs are tasked with strategic, operational and financial execution, they are even more on the hook for supporting valuation. As such, it is expected that they also know which key performance metrics drive investor decision making, and ultimately, valuation. But that is only half the battle. Even for leaders who know the metrics that are driving valuation, understanding how to align qualitative messaging to support quantitative outcomes is a daunting task.

Here’s how to hone in on the subtilities that will lead to the best possible valuation.

Finetune the story

More often than not, companies do not need to fundamentally change messaging or their identity as a business. However, companies do need to unlock the marginal aspects of their messaging, directly aligning with the most impactful valuation drivers.

Imagine a company that wants to share more information about its recent enterprise-wide adoption of kaizen practices. If valuation hinges most significantly upon gross margin performance, tying kaizen’s outputs to reductions in costs of goods sold will have a more significant impact than tying it to reduced inventory turnover. While this may seem like a small distinction, looking at points of emphasis can make a big difference in the long-term.

Riveron’s strategic communications team takes a four-step approach with clients to identify the most impactful drivers. These steps include:

1. Peer selection screening
2. Analyzing gaps in valuation
3. Identifying optimal shareholder base
4. Analyzing practices among common peers

Through these steps, we help companies zero in on the most relevant metrics to the overall strategy including additional KPIs, detailed bridge items, and segment-level detail. Providing this additional layer of granularity can transition foundational messaging for the Street into a strategic, targeted narrative that will more quickly and significantly drive up share value. Riveron can help your company rework its messaging with an eye on the specific details that matter most.

Once the metrics and the messaging have been ironed out, companies must then turn their focus to the audience.

Find the most receptive audience

Investors come in many different flavors ranging from deep value to aggressive growth and every variation in between. As a result, companies’ depressed valuations often stem from misaligned shareholder bases rather than simply poor performance or messaging. That said, the hard work that goes into perfecting messaging can be useless unless management teams and their teams are also working to pinpoint the best-suited audience to align with and buy into the business’ long-term trajectory.

Figuring out the ideal investor profile for a company can be tricky. At Riveron, we work with business leaders to carefully consider:

• Financial fundamentals of the business and forecasted performance
• Investment criteria
• Quantitative and qualitative metrics used to screen investments

Based on this analysis, we can define a series of characteristics that make up a company’s ideal investor and begin to target investment funds that match these characteristics. However, it’s important to keep in mind that companies constantly evolve, and therefore, the shareholder base needs to as well. In other words, defining the audience is not a one-time activity.

For example, a company that has pivoted from a pure play industrial manufacturer to provide digitally enabled solutions will benefit from telling a more technology-oriented story to growth-minded investors with a focus on the technology sector. Concurrently, this will deprioritize investors focused on traditional industrial sector fundamentals. Doing so will likely bring an elevated valuation, more in-line with the company’s long-term identity with an emphasis on recurring revenue, higher margins and long-term growth.

By combining targeting work hand-in-hand with messaging improvements, there is a real opportunity for a company to elevate its valuation.

Ace the delivery for the best valuation

When the story and the audience are right, the final step to achieving a desirable valuation lies in the delivery. Maintain consistency and exercise patience during this process to drive the results management seeks.

Here are some tactics that will help:

• Connect the dots. To achieve full credit for performance, stay focused on consistently disclosing all relevant information, drawing on the messaging work and emphasizing connections between the most relevant metrics and the finer details that make the most impact.
• Set clearly defined near–term targets and build on a track record of execution. Instill confidence by illustrating progress and wins early and often. To do this, set achievable guidance, provide additional color around outlook assumptions, and incrementally bridge toward long-term targets and key milestones on a quarterly basis.
• Ensure a consistent approach to capital allocation. Align this approach with corporate strategy and the profile created for the company’s aspirational shareholder base. Constant shifts in capital deployment will harm investor confidence.
• Leverage investor engagement opportunities to crystalize long-term strategy. Take advantage of analyst days, on-site facility tours, product days, and other face-to-face events to showcase direction and provide annual updates in settings and contexts that will help the message resonate with the base.

As with anything, consistency is key. A dependable, credible, and well-informed message, delivered in the right way to the right audience is the single most powerful tool management teams can use to support valuation growth.

Need help with any or all aspects of refining a compelling growth narrative? Reach out to the strategic communications experts at Riveron for a comprehensive approach to obtaining your best valuation.