BusinessCorporate FinanceMade to Measure – Finding a corporate stockholder

Made to Measure - Finding a corporate stockholder

As speculation mounts about an IPO revival, appointing a corporate stockbroker to generate interest in your business among the investment community is back on the agenda. Luke Ahern explains how to find one who will suit your needs.

You are an AIM or OFEX-listed company – but with few shareholders, virtually no trading in your shares and a low cash balance. But the business is strong and you have got a great story to tell. Appointing the right stockbroker could make the difference between failure and success.

Finding a broker and making sure they do the best possible job for your company may sound like a time-consuming task, but it’s well worth investing in this key relationship.

At flotation, corporate brokers have to judge the market’s likely demand for their client’s shares and set the share price and market capitalisation. Once these are set, the broker uses its marketing muscle to promote the shares to prospective institutional and private investors. After flotation, it is vital that the broker generates an orderly market for the shares and makes sure the stock remains at the forefront of investors’ minds – that’s important when you have got more than 2,000 listed companies to choose from.

Like a good suit, it’s all about fit. Getting the best service from a stockbroker is mostly about picking the right one in the first place.

Put at its simplest, certain brokers will work better with certain types of company. It’s not uncommon that smaller or medium-sized companies opt for a larger, established firm essentially to bask in the reflected glory of being looked after by one of the biggest and the best. Sadly, that doesn’t always work.

For the broker relationship to work best, you need some chemistry between the analyst, the sales staff and the client. Smaller businesses, for example, often relate best to smaller brokers because they will also have to work extremely energetically, yet without large resources, to increase business.

Both broker and client must constantly watch costs and battle hard to make sure that talented staff members aren’t poached by rivals with deeper pockets. By sharing similar goals and values, there is a good chance the broker and client will more naturally understand the main drivers affecting each other’s business.

Companies usually appoint a broker when they initially seek a market listing, but tend not to change them unless there has been an irreparable collapse in the working relationship. The markets are sensitive to changes of key advisers, so changing broker needs strong justification. That’s why picking the right one in the first place is so important.

The criteria for finding the right stockbroker should include relevant experience, either in your specific industry sector or in dealing with firms of a similar size to yours.

When you are putting together your initial list of prospective brokers, it is worth asking how important your business would be to their business. If your firm is a tiny fish swimming in their enormous pond, there’s a danger you will receive a less than adequate amount of attention, especially from more senior, experienced advisers.

Seeking recommendations from your other company advisers and business associates is always a good starting point. These advisers will have experience of working with a number of different brokers and should be able to give you a considered opinion.

Keep up-to-date with the financial press and take note of any brokers that seem particularly active or experienced in your company’s sector. And if you’ve worked with brokers in previous roles, don’t forget to consider any that you think did a good job.

After you’ve drawn up a shortlist, don’t make any decisions before you’ve met the individuals you would be working with on a day-to-day basis. Before they present to you, make sure the broker understands that you only want to meet the people who will be working on your account. You will then be able to judge chemistry and personal fit.

Talk is cheap – but seeing is believing. Ask for case studies of work produced for other relevant clients. A good supply of case studies also gives you an indication of how active the broker has been. Do not be afraid to follow up client references. And remember, it’s important not to confuse value for money with the cheapest fee. Shop around – compare services offered and charges before choosing one.

It’s only once you have appointed your broker that the real hard work begins of building up the relationship and ensuring that it is productive.

The broker should set prudent financial forecasts and issue research that clearly communicates your company’s investment potential to investors, and their expected return on investment. If there has been no recent research, this should be among your broker’s first jobs. This research should also be used by your public relations firm or inhouse representative to promote the business.

Information flow is vital so talk regularly to your broker. A failure to keep them up-to-date with your company’s progress will make it very difficult to set accurate market expectations. Without this information it will also be less able help the company with any difficulties it may experience.

Keeping your broker informed of company news doesn’t just mean letting it know what has happened, but pre-empting any important company news or issues due to crop up. After all, you want to benefit from its good advice.

Like any relationship, the one between a company and its broker develops over time, and requires investment to get the best out of it. This means spending time with your broker in the early stages in particular, to help it understand your business. This helps the broker, build all-important knowledge about your business and develops the necessary trust in the relationship.

  • A free list of stockbrokers and information about the services they offer is available on the Association of Private Client Investment Managers and Stockbrokers website Luke Ahern is director of broking at Corporate Synergy Plc.

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