Struggling to get attention: in the past few years, smaller public companies have found rough going when it comes to getting analyst coverage and the investor attention that goes with it. Hiring an outside specialist to handle IR is a route many should probably consider.

• Author: Holliday, Karen Kahler

Julie Bradley, CFO of Cambridge, Mass.-based Art Technology Group, which trades on Nasdaq, has a lament that is echoed by a lot of smaller public companies around the country: it's harder than ever to get an analyst's attention.

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"Currently at ATG, we are followed by one regional firm. Just five years ago, the company was followed by more than 10 analysts," Bradley says. "Small companies need to be proactive with the investment community and need to deliver a clear and compelling message. We're competing against thousands of other small companies for the attention of a limited number of analysts and investors."

Differentiation from the pack is a tough proposition for any publicly traded company nowadays, and the challenge is even more formidable for smaller entities as downsizing and regulatory factors have altered the investor relations landscape.

"The consolidation among sell-side firms and the fact that investment banks generally focus on larger-cap companies has created a challenging environment for small-cap companies," says David Calusdian, executive vice president of Boston-based Sharon Merrill Associates Inc., an investor relations firm.

Wall Street's reshuffling efforts of recent years--many sparked by charges that analysts were too beholden to their investment banking colleagues--have resulted in fewer analysts who are spread thinner, making small-company coverage even more elusive. Reuters estimates that since January 2002, 691 companies have lost analyst coverage. Moreover, a June 2005 Nasdaq press release stated that approximately 1,200 of its 3,200 listed companies and 35 percent of all public companies have no research coverage. The same release indicated that 50 percent of all publicly held companies have two or fewer analysts covering their firms.

"The downsizing of sell-side analyst coverage has hit the small firms disproportionately because their trading volume, and hence potential for commissions, is so much less than large firms," notes Brian Bushee, a professor at The Wharton School at the University of Pennsylvania who co-authored a 2005 research paper with Harvard Business School Professor Gregory S. Miller entitled Investor Relations, Firm Visibility and Investor Following.

Impact of Reg FD

Regulation Fair Disclosure (Reg FD, which took effect in 2001), which eliminated selective disclosure practices, has also had an impact. "Since information must be simultaneously disclosed to all interested parties, much of the information monopoly enjoyed by the investment banks has been mitigated," says Craig...