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Online brokerage muscles in on the road show Add to ...

CAPITAL MARKETS REPORTER

For capitalism to work, companies need to meet investors, and investors need to meet companies. But like singles in the big city, they don't always know how to find prospective matches.

For years, big brokerage houses like RBC Dominion Securities and Goldman Sachs have played matchmaker by taking management teams on "road shows" consisting of days packed full of meetings with investors.

Increasingly, however, the Internet is changing how those road shows are done, just as it has upended other areas of the securities business, such as electronic trading and discount brokerage services. The giant brokerage firm Instinet Inc., a pioneer in electronic trading, is today rolling out a new product in Canada and the U.S. called Meet the Street that will act as a kind of online dating service to pair companies with potential investors.

It's a challenge to firms such as Goldman and RBC, which have long used their ability to line up management meetings as a carrot to keep investor clients. Trade with us and pay us lots of commissions, they tell investors, and we'll make sure you get a chance to sit down with chief executive officers.

Meet the Street aims to do over the Internet everything the bankers who organize road shows usually do - giving companies the ability to book their own meetings, flights, hotels, and limos. Don't know the city? The product will even suggest the most popular steakhouse in town for big lunch meetings and use GPS technology to cluster meetings to save travel time.

The idea is to automate everything an investor relations person at a company needs to pull together the marathon management trek that many companies do quarterly to keep in touch with existing investors and find new ones.

"It's been one area of Wall Street that for decades has been a real manual, labour-intensive process," said Mike Dolan, co-president of Meet the Street. "There are a lot of products and services on the street that have seen huge improvements in efficiencies because of innovative technology. This is the one area that technology has really ignored."

The product is designed appeal to small companies that are ignored by the traditional road-show planners - the company analysts who follow corporations.

More and more companies have no analyst coverage because banks have downsized. Instinet estimates that the number of U.S. analysts has plunged to fewer than 3,000 from 16,200 in 2000.

For that reason, the system may appeal to investor-relations executives like Meghan Brown, who worked at big gold miner Placer Dome Inc. before moving to smaller Ventana Gold Corp.

"At Placer Dome, if we wanted to go on a road show, it was really easy, we just called up one of the analysts who happened to be in good favour," she said. "They take care of every limo, every taxi, every hotel, every meal."

"But if you don't have analyst coverage, or if your analyst coverage is from a small little boutique type bank that doesn't have a good network of institutional clients, then you're in a position where you really need to be building and managing your own road shows. That's not always easy to do."

Now Ms. Brown uses Bigdough.com, a database of investors, to track down potential shareholders. For a trip to Boston, for example, she can dial up all the investors in that town who hold shares of Ventana's peer companies. She can then get in touch to pitch a meeting.

Meet the Street tries to eliminate that cold calling. Portfolio managers submit a watch list of companies, and when a company wants to go to any city, the system tells the investor relations officer which portfolio managers in the area are interested in meetings and provides a message system to get in touch.

Companies will pay a flat fee, while investors pay per meeting in cash or by funnelling trading to Instinet.

There are additional selling points that come from cutting out the middle man, Mr. Dolan said. For both the investors and the management teams, having the bankers involved in the meeting process can create potential conflicts of interest.

Management teams would rather meet buy-and-hold investors, the Meet the Street principals argue, but investment banks tend to set up meetings for investors who generate the most trading commissions, often meaning fast money types who buy and sell quickly.

"We're looking for long-term holders who are interested in the long-term strategy of the company, not holders that are just going to flip it the next day," said Anne MacMicken, who handles investor relations for Newalta Corp.

On the other side, investors don't always want the bankers in the room at the meeting, because the bankers also talk to the investors' competitors at other funds. They might leak insights on what questions were asked, and what the answers were.

"The portfolio managers get a little paranoid," added Meet the Street co-president Dan Dykens, who spent a decade as a portfolio manager before setting to work building the introduction system.

"There's a big conflict here, and people aren't necessarily comfortable with it, but there's never been a better way to do it," he added. "There's never been a technological innovation that allowed people to cut the umbilical cord and do this in a more efficient manner."

 

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