Hey! Look at Me!

With research coverage scarce, some companies are seeking professional help.

Sometimes Mike Shea feels like a forgotten man. As CFO of Mac-Gray Corp., an operator of laundry facilities, he enjoyed the coverage of three sell-side research analysts in 1997 when the company went public on the New York Stock Exchange. Today, no one on the sell-side follows the Cambridge, Massachusetts-based company, which had $183 million in 2004 revenue. “I used to be able to get in touch with analysts and converse with them, but we can’t even reach them any more,” laments Shea. “The story is pretty much consistent. They say, ‘I’m really busy’ or ‘I’ve got other obligations,’ and there’s just no room for us.”

Corporate orphans are everywhere these days, as bank consolidations and cutbacks among the sell-side research analyst ranks have left fewer Wall Streeters covering the universe of publicly held companies. According to Reuters Research, 682 public companies have lost sell-side coverage since 2002. And according to The Nasdaq Stock Market Inc., 35 percent of all public companies lack research coverage.

With the traditional route to investor awareness closed, Shea and other CFOs are seeking professional help — investor-relations help, that is. In August 2002, Shea hired IR firm Sharon Merrill Associates to spread the word about Mac-Gray among potential investors. The company’s stock price has since climbed steadily from around $3 to $11, and average daily trading volume has edged up from just 3,500 shares a year to more than 20,000 shares thus far in 2005. Institutional ownership has also risen as Shea and CEO Stewart MacDonald have attended more investor meetings and conferences. “By getting us out in public more often, [Sharon Merrill] helped us increase our institutional ownership,” says Shea. “They set up meetings for us with funds that we would not have contacted on our own.”

With the help of an IR firm and a major commitment of time and energy, CFOs can develop strategies for delivering their companies’ messages to the marketplace. Raising a stock’s profile in the absence of a sell-side analyst report takes work — but it can be done.

Bang for the Buck

IR firms proved their worth in a recent study by Gregory Miller of Harvard Business School and Brian Bushee of The Wharton School. Surveying a sample of 184 companies that hired such firms, the professors found “significant increases in their disclosure, press coverage, trading activity, institutional-investor ownership, analyst following, and market valuation.”

One such fortunate company is Graham Corp., an industrial-equipment manufacturer in Batavia, New York, with $41 million in fiscal 2005 revenue. Graham began working with an IR firm a year ago, says CFO Ron Hansen, and since then its stock price and trading volume have risen to record levels. While Hansen points out that the company’s link to the booming oil industry is the most important explanation for the rise in its stock price, he says the exposure generated by the company’s IR program has likely increased the effect. “In the past we’ve gone through industry up cycles and we weren’t hitting the highs we’re hitting today,” he says.


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