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LHA’S Top 10 Investor Relations Strategies to Navigate a Bear Market
LHA’S Top 10 Investor Relations Strategies to Navigate a Bear Market

In a bear market, the best defense is a good offense. LHA recommends these Top 10 IR strategies for surviving in this type of environment.

#1 Protect Your Flank, Control the Narrative: Fortify relationships with covering analysts and current investors to maximize core support for your company and its prospects. Reach out to former investors that sold positions ahead of the market correction as they may find the new valuation attractive. Reinforce fundamental strengths with a virtual Analyst/Investor Day that showcases members of the entire management team. Consider presenting business model sensitivities to various economic scenarios.

#2 Resist the Bunker Mentality: Continue holding non-deal road shows, attending investment conferences, and accepting speaking opportunities. Perhaps, you should consider even increasing these activities, taking advantage of diminished competition for access to prospective investors and analysts. Augment this enhanced visibility by increasing the frequency of communications, providing incrementally more information while also addressing areas of heightened uncertainty (e.g., recession, inflation, interest rates, supply chain, labor shortage).

#3 Take the Call: Investors are nervous about their holdings and are prone to call management for reassurance more frequently than before. It’s essential that calls be returned in a timely and professional manner– even if there’s no “new news” to discuss. Choosing not to return investor inquiries can have a detrimental impact and may catalyze negative social media posts. Consider increasing transparency about hard topics on your quarterly financial conference calls. By acknowledging the challenges, owning your performance, and describing initiatives to address the problems, you build credibility while controlling the narrative.

#4 Adapt Your Business to the Changing Environment: While consistency of narrative and vision is valued, when external forces necessitate change, investors reward nimble decision-making. With a nod to Adam Grant and his bestseller “Think Again,” leaders often do better when adjusting as appropriate to changed macroeconomic and business conditions. Credibility is sustained when making these adjustments while adhering to the organization’s mission and core values. This concept proved true repeatedly as companies adapted to remote work and CDC guidelines during the pandemic.

#5 Cast a Wide Net with Your Ideas and Communications: Think about how investors view your balance sheet and your capital allocation strategy as mitigation against risk. If you have a healthy balance sheet and your operations generate cash, highlight that to investors and consider strategies to leverage those strengths as competitive advantages. If not, consider alternative sources of capital to fortify your cash reserve, such as selling non-core businesses or monetizing assets. If you need to adjust business plans and operating budgets, make sure the Street understands you are protecting revenue-generating assets and funding key future revenue-generating initiatives, or there will be a price to pay later. Also, accept that dilution is not a sin and raising capital may be necessary, even at less-than-ideal terms, as transactions that were unsuccessful or impossible in the past may now be within reach.

#6 Establish Your ESG/SEI Policies: The most recent bear market was notable for investors requiring ESG/DEI as additional criteria for investment consideration. Environmental, social and governance (ESG) policies and diversity, equity and inclusion (DEI) concepts are increasingly important to stakeholders, notably to shareholders and employees. Establish strategies and policies that fit your company, keeping in mind evolving SEC reporting requirements and trends toward standardizing metrics. Many companies publish ESG reports, but at the very least management should be ready to respond to questions from investors who are using these risk management tools. Keep in mind Strategy #5: “Cast a wide net with your ideas and communications,” balance smart investments in your future with near-term financial performance protections, and resist the temptation to focus exclusively on the nuts-and-bolts of running the business.

#7 Prepare for the Next Perfect Storm: Business is cyclical and too often the “new normal” succumbs to long-established economic truisms. Make time to prepare for the next bear market, including planning to ensure adequate cash in the coffers, cultivating a wide network of investment community relationships, developing contingency plans for expense management and more. Especially for smaller development-stage and growth companies, the maxim “get it while you can” without being reckless or greedy makes good sense. As we all know, things can and do change, oftentimes very quickly and with little advance notice.

#8 Stay Fresh and Relevant: Refresh your investor relations collateral and website to reflect the macro environment, industry changes and new strategic thinking, or simply to present a new look and feel. Consider new options to reach investors like a video update, CEO blogs and social media. Content might include customer/user/KOL testimonials, product demonstrations and virtual facilities tours. Keep communications tight with subject lines that deliver a powerful punch and tech-friendly content that captivates the reader in any format on any device.

#9 Seize the Opportunity that Comes with Change: Take advantage of the fact that during a business contraction next-tier and aspirational investment banks may be receptive to meeting you as they adjust their target client criteria to include smaller market caps or less-mature companies. Get the meeting, take the call, build the relationship, be opportunistic and remain accessible. Wall Street is a volatile place and the contacts you make and the relationships you nurture today may bring unexpected benefits tomorrow.

#10 Provide Forward-Looking Viewpoints: Provide forward-looking viewpoints on risks and opportunities, even at a high level, during your quarterly reporting to give context to how your company is managing the bear market. Expand your call beyond a review of recent accomplishments. Investors expect their management to offer a point of view on macroeconomic conditions and industry trends, as well as to explain how they are responding to and/or preparing to respond to those external factors. Use the next quarter-end call to describe what you’re expecting for next year; this is especially important for companies with a calendar fiscal year and will have a longer period until the next reporting season. Tax-loss selling has begun for investors, but so has hunting for companies positioned to perform well in the year ahead.

 

LHA Investor Relations is a leading strategic IR consulting agency. We partner with public and private companies to craft and implement effective, custom-designed IR programs that incorporate industry best practices. We are a leader in investor relations for small-cap companies for over 30 years. In implementing IR programs that build trust and transparency between our clients and Wall Street, we support capital market objectives by increasing awareness, managing expectations and enhancing reputations.

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