Capital Markets & Investor Relations

IR Weekly – Monday 29th June

Welcome to FTI Consulting’s IR Weekly newsletter.

In this week’s edition we consider; the growing number of IROs entering the C-Suite; new barriers to foreign buyers in the UK market; the squeezing out of retail investors amidst a flurry of emergency fund raises; the fantasy of EBITDAC metrics; and Jeff Ubben’s change of heart on the subject of activism. We close with a new feat in the world of corporate filings, where Elon Musk’s infamous Twitter habit has potentially created a new basis for investor communications.

This week’s news

IR Enters the C-Suite

IR Magazine has noted the growing numbers of Investor Relations Officers joining the C-suite in large- to mid-cap companies. Though a previously uncommon path, the growing trend shows that IR professionals are well suited to make the transition to CFO roles in particular. Large cap industrial equipment producer Ingersoll Rand, marine product manufacturer Brunswick Corporation, and hospitality and software company Agilysys are the latest to find their new CFO amongst the ranks of IR professionals. The capacity to think like an analyst is the big draw for companies to look to their IR professionals to join the C-suite. Though still a new trend, industry experts expect it to become more common in the coming years, as Peter McDermott, senior client partner at Korn Ferry claims, ‘In the last couple of years, every single IR assignment we’ve worked on has included a discussion around succession planning into another function.’

Not For Sale

As the coronavirus pandemic has highlighted the importance of national self-reliance, the UK is increasing barriers to foreign buyers in key industries of healthcare, AI, and other high tech, the Financial Times reported. New rules have been tabled by the Government that would make foreign investment in these sensitive industries more difficult. Business secretary Alok Sharma stated that the rules were designed to prevent “financially distressed companies being sold to malicious parties” in the wake of pandemic-related economic stress. For some offshore investors, even the threat of a protracted Government probe is enough to deter investment. Critics, such as the Financial Times’ Martin Wolf, have called the new restrictions unwise, claiming supply chain resilience is best achieved by diversifying supply networks across more locations, rather than turning inward. Similar restrictions have already had a prohibitive impact: Chinese company Aerostar recently dropped an investment in Mettis Aerospace in February due to the length of the resulting government inquiry.

Retail Investors Finding Their Voice

Retail investors are being left behind as companies scramble to emergency raises in the wake of the pandemic, according to an open letter posted to retail investment app PrimaryBid in April. Euromoney reported that frustration is growing amongst some retail investors that, despite making up 20% of the secondary turnover in the FTSE All-share index, the segment is being squeezed out in recent emergency raises by hedge funds and executives. The open letter pointed out that the speed of emergency raises need not be a barrier to retail investors, with technology available to automate retail offerings without pre-emption alongside quick institutional placements. Peter Hargreaves, founder of Hargreaves Lansdown, Paul Killik of Killik & Co, and Anne Richards, chief executive of Fidelity International are just some of the big names to sign the letter in support of the smaller investor.

The EBITDAC Fallacy?

Investors are becoming increasingly concerned that borrowers are adjusting their earnings too aggressively in order to avoid defaults and delay the possibility of restructurings. The New York Times reported that an increasing number of investors and lawyers believe that adding back Covid-19 related costs onto balance sheets is inappropriate as no one knows how long the effects of the pandemic will play out. Debt financiers including Allianz and Janus Henderson have urged borrowers not to use EBITDAC as a metric to gain access to more leverage, as the likes of Samsonite and Live Nation continue to use 2019 earnings in covenant calculations into 2021 and beyond, with an assumption that any effects of the pandemic will be short-term only. Relying on EBITDAC may be ‘a fairy tale and using it in covenant calculations would be like living in a world of imagination’.

Ubben: Wall Street’s Fukuyama Moment

ValueAct Capital’s founder Jeff Ubben rocked the boat in an interview with the FT, after he announced that ‘finance is like, done’. Ubben is on his way to start a new fund, Inclusive Capital Partners, but BreakingViews believes that he is not yet completely done with the forces of shareholder capitalism as activists begin to encroach on these companies to enforce a shift. Matt Levine in the Bloomberg Opinion argued that these shifts are the inherent nature of  a financial industry that lives by doing trades.  ‘Traditional’ finance may be allowed a brief victory dance to celebrate its decades of success, before heading the other way to undo all that it has facilitated to make way for more deals. Because that is what the industry is paid for.

And finally…

Elon Musk’s tweets have made SEC history according to the FT , as a proxy statement filed earlier this week may have been the first time in which tweets have featured in a key announcement to investors. The filing in question, announcing that Tesla is postponing its 2020 Annual Meeting, included a thread between Elon Musk himself and a string of investors discussing the date and location for its next AGM. While Musk is renowned for social media indulgence, this may represent a greater move towards direct communications with investors.

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