Instinet combats analyst dearth with corporate access tool
Agency broker Instinet has launched Meet the Street, a corporate access offering for the US market that aims to match corporate management teams with interested buy-side investors though a web-based service.
Instinet has become the third agency broker to enter the corporate access space in recent months, which has traditionally been the preserve of bulge-bracket investment banks. Liquidnet, an agency broker and crossing network operator, launched its InfraRed service in June 2009, while agency broker and technology provider ConvergEx debuted its Management Access service in January 2010.
Sell-side equity analysts have typically arranged the meetings between companies’ senior executives and the buy-side firms interested in buying the companies' stocks, but Instinet’s new service aims to transfer control of the process from the sell-side to companies’ investor relations officers (IROs). According to Instinet, IROs will be able to use Meet the Street’s electronic platform to schedule a full non-deal roadshow with targeted investors who have previously expressed an interest in their company.
The service is in part a response to the dwindling number of sell-side equity analysts, which has led to a dearth of coverage, particularly in small- and mid-cap stocks, according to Dan Dykens, co-president of Meet the Street. Dykens cites a TABB Group study that estimated there were 16,200 analysts on the Street back in 2000. “By our count as of a few months ago, that number was below 3,000 and we think it could be less than 2,600.” he told theTRADEnews.com.
Dwindling trading commissions have prompted those remaining sell-side analysts to focus on heavily-traded large-cap names, added Dykens. “Around 20-30% of the market, that has virtually all of the research coverage, while about 70% of the market ranges from under-coverage to no-coverage,” he said. “That is creating a lot of inefficiencies and problems in the market.”
Instinet had also detected a dissatisfaction with the current method of bringing companies and investors together. Dykens cited a January 2009 study by BNY Mellon, where 69% of respondents believed that there is a conflict of interest when brokers/equity sales teams arrange non-deal roadshows given their interest in driving trade commissions. This is despite the fact that 73% of investor introductions are facilitated by the sell-side.
This business has always been a very manual and inefficient process and legacy issues have blocked solutions form entering,” said Michael Dolan, co-president of Meet the Street and head of Instinet’s US research sales group. “To solve the conflicts of interest, lack of coverage and the overall inefficiency, we have built an innovative technology solution for corporate access that is designed to completely streamline and automate the process.”
Investors submit details to Meet the Street about the kinds of companies they are interested in meeting and provide their email or instant messaging address. Corporations booking roadshows upload their agendas and send out invitations via email or instant message to the investors that have expressed an interest in their companies. The investor then clicks on a link to accept the invitation, which automatically populates both sides’ Microsoft Outlook calendars.
While Meet the Street removes the need for a sell-side analyst to facilitate the meeting between corporations and investors, Dykens stresses that the aim is not to completely replace them, but simply to fill the coverage gap left by the dwindling number of analysts. “We are augmenting the process where companies have coverage today and replacing an abandoned process where there is no solution,” he said.
Instinet also argues that its service is different from those recently launched by its peers because it seeks to automate the process of setting up meetings between corporations and investors. “We are seeing our competition replicate a process that we view as being broken,” said Dykens. “We thought there was a smarter, much more efficient way to do it and we have changed the process.”
Jonathan Kellner, president, North America at INstinet, added, “We are not getting into the corporate access space just to be able to say we are there. We think we have a product that is unique, differentiated that our clients and corporates want.”