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Can Underfollowed Companies Still Attract Sell-Side Coverage? The Answer May Surprise You.

By David Calusdian, President

The Right Targeting, Effective Storytelling and Proactive Engagement Can Generate Results

For both new and experienced issuers, obtaining sell-side coverage can be challenging to understand. Is it based on your relationships, story, financials, and/or other factors? How can some companies manage a full roster of covering analysts, while others still struggle to maintain just a few?


One thing is certain – the sell-side research model is anything but straightforward. It’s also constantly changing. In recent years, Europe’s revised Markets in Financial Instruments Directive (MiFID II) mandated that sell-side firms separate payments for trade execution and research. Since its inception, MiFID II has expanded to the entire global banking industry, contributing to many sell-side firms dropping coverage of whole industries or eliminating investment research services completely.

Without the all-important investment banking dollars, it has become increasingly difficult to attract sell-side attention, especially for small-cap companies. This leads us back to our original question – is obtaining coverage even within the issuer’s control?

While the landscape continues to change and generating coverage is certainly not easy, it is entirely possible. We've found success in generating sell-side coverage for underfollowed companies with compelling investor stories and management teams who are willing to engage with investors.

Here are six steps for small-cap issuers to better attract sell-side coverage:

1) Target mid-sized and boutique banks.

Micro- and small-cap companies should focus on targeting mid-sized and boutique sell-side firms for a better chance of success. In fact, some of these firms actually prefer to find under-covered stocks and to be the first to initiate coverage on them. There are two main reasons for this. First, if boutique banks establish a relationship early on, then the company is more likely to include them in future banking deals. And second, a new analyst’s coverage can have a greater impact on companies with a smaller sell-side following when compared to larger-cap companies that tend to have many following analysts.

2) Conduct a cross-peer analysis.

Effective targeting also means looking at your peers’ analyst coverage. Ask yourself if you have connected with any of these analysts before? Given your relevance to their existing research, they would likely be interested in at least an initial meeting to hear your story. If this goes well, you can keep in contact and continue to build the relationship.

3) Develop a compelling pitch.

You need to provide analysts with a reason to be interested in your company. If they cannot see the potential for growth early on during due diligence, they are unlikely to move forward. One key messaging opportunity in your pitch is to explain what aspect of the story other analysts might be missing. Help them to understand how they can stand out – and help their clients to generate alpha.

4) Outline realistic goals and your strategies for achieving them.

If an analyst initiates coverage early on, they can create a solid reputation as the company grows and delivers returns to investors. This means they need to see a clear path for how the company will grow revenue, improve margins, and achieve other financial targets during the next three to five years. However, make sure not to overpromise! Analysts have exceptionally unforgiving memories. They will use these promises to benchmark your success and challenge you if necessary.

5) Hit the road.

Participating in non-deal roadshows with non-covering banks is a very effective strategy for attracting new sell-side coverage. The analyst can hear your story in meeting after meeting, you can meet new potential investors, and you’ll both have the opportunity to further build your relationship. It’s a true “win-win-win” trifecta!

Attending conferences sponsored by a prospective sell-side firm is another great way to develop your sell-side relationships and meet new investors. Make sure your management team is prepared to attend such conferences at the last minute, as banks often will extend invitations to companies that they don’t cover when there is a cancellation.

6) Be patient.

There is no doubt, obtaining new sell-side coverage as a small-cap company is hard. Nurturing a relationship with analysts takes time, and they need to see that there is interest in your company on the buy side before initiating coverage. Think of it as a dating period! You may need a few meetings and non-deal roadshows with a potential sell-side prospect before they decide to pick up coverage. Use this strategy to court several analysts at once. With multiple shots on goal, you ultimately can achieve some major wins.

Unravelling the Sell-Side Mystery

Obtaining sell-side coverage may seem like a mystery, but it’s one you can solve with the right targeting, compelling storytelling and proactive engagement. Revisit your pitch and make sure it demonstrates a clear strategy for growth. Expand your universe of sell-side analysts to include boutique firms. And don’t be afraid to go on a few “dates” with different analysts in order to establish a mutually beneficial relationship that will ultimately result in coverage and greater exposure to investors.

Is your IR program in need of a recharge? Do you feel Wall Street is having difficulty giving you credit where credit is due? With more than three decades of experience, Sharon Merrill can help you plan and deliver a best-in-class investor relations program. Click here for an overview of our investor relations service offerings or fill out the form below for a complimentary consultation.

Sharon Merrill Associates, Sell-side Coverage, Sell-side, Investor Relations, IR Trends, IR Recommendations

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