parlez - vous investor relations?

Pay attention to some differences between investors in the U.S. and Europe, and you can put on a jolly good road show.

As markets globalize and technology compresses time and distance, variations in allocation patterns between U.S. and European investors are narrowing commensurately. Eventually, says Scott Ganeles, president of The Carson Group, a New York-based consultancy with a large overseas investor-relations practice, U.S.-based companies will have to commit the resources to put overseas IR operations in place. In the meantime, though, Ganeles says, some differences still exist between shareholders on either side of the Atlantic.

"At this point, there's only a certain amount of European money dedicated to U.S. investments," he explains, "although everything is changing on Internet time. European investors tend to have longer-term investment horizons, although that's changing, too. They don't require the same amount of handholding, because they don't have the time to dig as deep [for shareholder information]. Since your company's stock isn't the primary driver of their portfolio, they may not move as quickly off the same information; they may not have the same interest-rate fears, for example. And the majority of European money managers don't have dedicated industry analysts; they have generalists who study U.S. companies."

Sooner rather than later, though, Ganeles adds, "There will be dedicated industry analysts." And, he thinks, European traders soon will model their investment style after their U.S. cousins'. So how should companies handle IR as this diversity evaporates?

"At all times as CFO, you want a balanced shareholder base of people with different perspectives and time horizons," Ganeles says. "But different size companies should have different strategies and different expectations. European analysts start by asking themselves, 'What companies do I have to follow?' Then they ask, 'What companies can I follow optionally?' Larger-cap companies have a decided advantage because generalists can follow them. The research is so much easier."

Thus, just as European-based multinationals like Royal Dutch and BP have had IR staffs in the U.S. for years, Ganeles notes, "All large-cap U.S. companies should have Europe on their radar, although certain industries translate better over there: oil, telecommunications, technology and other global players, rather than a traditional domestic retailer."

Because of the sophistication and size of its financial market, he says, "Treat London as just another American city, like Boston. It may not be necessary to visit with analysts there as often, but if you decide to visit, you need to be there on a consistent basis, in good times and bad, with a lot of follow-up."

Technology -- webcasting, e-mail, the Internet -- will make staying in touch easier, he thinks. And don't let cultural differences surprise you. For instance, Ganeles explains, "Don't have the same expectations for a meeting. It's okay if no one asks questions.

Furthermore, he says, "Set realistic goals for foreign ownership. One factor is how global your operations are." And name recognition helps, too. "Five percent is average for a global large-cap like Boeing with operations everywhere in the world. If you're a small-cap company in Texas, 20 percent foreign ownership is unrealistic," he thinks.

Another strategy: "Utilize IPOs or follow-up offerings to place shares overseas, because those are orchestrated. Based on discussions with a company's CEO, most investment banks will place between 10 percent and 20 percent of the offering's shares overseas," he says.

"A lot of companies don't look at IR as a marketing effort," Ganeles concludes. "But why do you market your soap one way and your stock another? You need to think about marketing overseas in the same way that you market in the States, although Europe is about five years behind us in terms of the structure and resources for investing. But a year-and-a-half from now, there will be no difference. Market intelligence will have to have the same mentality as the news business, with stringers in place [to gather information]."

A View from the Opposite Shore

"U.S. investors invest in U.S. stocks. European investors invest in worldwide stocks," says Michael Bamforth, a managing partner at Kuhn Partners, an investor-relations consultancy in Brussels. That's one difference between the two. And it's why many Europeans are feeling burned; Bamforth says they misread the world markets badly for the past five or six years, thinking American stocks overvalued and sinking money into Asia and emerging markets instead. "It's difficult to get into a market you felt was fully valued five years ago and which has gone up 30 percent on average each year since then," he notes.

Still, he says, "The potential for U.S. companies coming to Europe has never been better. The overall investment strategy in Europe is predominantly growth at a reasonable price. They're not momentum players, so they're searching the U.S. market for value plays, looking to increase their weighting." He says this is true especially in Germany, where a new breed of money managers recognizes that equities yield better returns than their fathers' favorite vehicle, bonds.

Furthermore, he says, Germany and France are turning to equities to finance their newly established pension funds. And, he adds, the U.K.'s appetite for U.S. equities is growing in the wake of sub-par performance by some major money managers who undervalued their U.S. portfolios.

"Certain companies need to do IR in Europe because they're widely held here," Bamforth adds, citing technology and pharmaceutical firms in particular. "They need to update their shareholders on their performance and strategy. But, of course, those that aren't widely held should do JR here, as well."

There are, of course, caveats. "Europeans are not homogeneous," he points out. One example: "The predominant source of funds in the U.K. is institutional pension money. The predominant source of funds in Switzerland is private investment money." Stock preferences vary, too, he says; biotechs and smaller-growth stocks, for instance, are more popular in the U.K.

Face Time

But trying to attract investors without first attracting U.S. sell-side research coverage is "like trying to ski without snow," according to Bamforth. Thus, he says, European fund managers -- generalists who follow the whole U.S. market rather than specific sectors -- "need all the help they can get in terms of which sectors and which companies within those sectors they should be looking at. They look to the U.S. sell-side firms for this help and they also need a direct line to a company's JR department. You should mail and fax information on a regular basis and commit to visiting Europe, say, once a year. And they like to meet senior management. If they can do that on a regular basis, they're more likely to hold the stock."

Orchestrating a European road-show, though, can be time- and labor-intensive. "You have to target the right cities, spend the right amount of time there and visit the major shareholders one-on-one -- although if you just did IR in London, you'd cover 60 percent of the territory anyway," Bamforth advises. "The larger money managers want personalized service, so you need a couple of days in a city. With so many of these in London, you need a couple of days there." The presentation should resemble one a company would make to U.S. shareholders, he adds, although presenters should remember that they're addressing generalists.

"You also have to meet with major non-shareholders for sales calls, then hold a group meeting over lunch to mop up the rest of the prospects," he says. Representatives of Lucent, for example, recently spent two days following this scenario in London, and talked with 110 investors.

Understandably, he says, European analysts focus on market leaders. Therefore, "If you can show you're number one or number two, that's an obvious plus," he says.

And how helpful is the Internet?

"Web sites are becoming a major tool," Bamforth says, "but the buy side still relies on personal interface."

Stockpiles

The total amount of the top European financial centers' investment in U.S. equities is around $400 billion, says Michael Bamforth, a managing partner at Kuhn Partners in Brussels. The numbers break down along these lines:

48% U.K.

30% Switzerland

10% Germany and France

5% Sweden and the Netherlands

7% Other