Partnering With A Brokerage Firm

Examine brokerage firms carefully to find the right support.

The real truth about investor relations is that you can't doit alone. Every successful small public company has a broker orseveral brokers that produce research, provide entrée toinstitutional investors and make a market for the company'sstock. A brokerage firm can act as your firm's sponsor. Hereare some of the characteristics of brokerage firms to look for whenyou're deciding who your partner in the capital markets shouldbe.

Research. Does your would-be brokerage firm provideresearch coverage? It's difficult to pull in interest fromother quarters without any analytical opinion out there whatsoever.Does your investment banker do real research? One acid test iswhether the broker's earnings estimates are carried by forecastreporters Zack's or First Call, because neitherof these organizations will report claims from brokerage firms thatwrite puff pieces. If the broker isn't listed, it's a signthat the Street will not respect your broker's opinion and willignore its research.

Customer base. Ideally, you want a brokerage firm thatcaters to institutional as well as individual investors. With twosets of customers, one can function as the second wave of buyingafter the first gets antsy, which inevitably happens. If you haveto choose one over the other, pick a firm that has an individualcustomer base. Why? Most institutional investors ignore companieswith market capitalizations of less than $100 million. If thatdescription fits you, and all your broker's customers areinstitutions, there's very little they can do for you at theend of the day.

Capital. Ask your would-be investment banker how muchcapital they have. Remember, their ability to step up to the platein the market and buy your stock when sell orders crop up is, amongother factors, a function of how much capital they have. The morethey have, the better your investor relations program is likely tobe.

Branches. From an investor-relations perspective, brokerswith multiple branches are better than centralized operations. Withlots of branches, there's more opportunity to make lunch orbreakfast presentations to groups of brokers and win new friends.In addition, those brokers can introduce you to brokers at otherfirms, or perhaps even institutions in their immediate region, thatyou would otherwise never get to.

Contacts. If your investment banking firm is indeed yourentrée to the capital markets, you want to make sure it'swell-connected. Ask the head honcho for a list of people the firmcan get you in front of in every metropolitan area in the country.They might take exception to this, but when you say, "I wantto support the deal in the market and want to meet as many peopleas possible," they'll have little choice but torespond.

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