A consultant and a journalist describe how they spotted a gap in the region’s consultancy market
Iridium's growth driven by the finer points of investor relations
When the German entrepreneur Oliver Schutzmann came to set up his Dubai-based investor relations consultancy Iridium in 2015, he wasn't put off by the fact that his company was launching against the backdrop of the steepest fall in oil prices in almost a decade. Quite the opposite, in fact. In the new, tighter economic climate, companies in the Arabian Gulf region more than ever had to call upon investors to help raise cash at a time when governments became less willing to provide financing.
"Overall, I feel our timing has been pretty good," Mr Schutzmann told The National. "It's perfect from the point of view of the oil price. ... There is a universal recognition of this now that the days of non-stop surpluses from oil are over, at least in the near and medium term. No one expects $100 a-barrel oil anymore and this has really helped us by forcing people to think how they are going to fund their future growth."
In previous years, large companies in the region, many of which are partly owned by governments, could often seek state support to help them plug any financial holes. This all changed from mid-2014 onwards, when the price of oil fell from more than $110 per barrel to less than $30 per barrel in early 2016. Because of the financial strain many governments in the region have been put under as a result, companies now have to rely more on third party investors to raise cash by selling new shares or bonds, Mr Schutzmann says.
He and his co-founder Tom Ashby named the company Iridium because the chemical element's symbol on the periodic table is IR. However, the co-founders hope that the company will prove similar to the chemical element in other ways, sharing its resilient and anti-corrosive nature.
Iridium has been able to find plenty of opportunities in its first two and a half years of operation, in spite of launching during the economic slowdown. Since its inception, Mr. Schutzmann says the company has witnessed 100 per cent revenue growth year-on-year, and expects similar growth in the next couple of years. (He didn’t want to divulge exact figures).
The company's high pace of growth is partly of course due to its starting from a low base, but is largely due to the underdeveloped nature of the investor relations sector in the region and the company's lack of competition. Mr Schutzmann noted that when he arrived in Dubai in 2006, the investor relations industry was largely non-existent, with capital markets in the country and the wider region still largely in their infancy.
Mr Schutzmann says that despite the great strides companies have made in improving their investor relations capabilities since then, there is still much room for improvement both in the region and worldwide. Most publicly listed companies around the world have an investor relations department or outsource the job to companies like Iridium to help them handle queries from investors and provide them with information about the company.
In Mr Schutzmann's opinion, one of the big problems that companies in the region face is the fact that they have often relied on public relations companies to provide them with help with investor relations. All too often, such public relations companies are not familiar with fine details of the information disclosure requirements required by regulators in the region and abroad.
By way of example, the entrepreneur noted that companies often disclose financial information without explaining the reasons behind gains or losses, making it difficult for an external investor to understand what the prospects of the company are. As a result investors that are keen to lend are frequently put off, and prevented from committing due to their own internal rules and requirements.
"Pretty much for the last ten years, listed companies have been advised by PR consultants and there are some very important differences between investor relations and public relations,” said Mr Schutzmann.
“The fundamental difference [with] PR is that you try and promote the company, persuade the audience, you try to exclude risks and influence the judgement and everything is short-term spin. In investor relations you don't try and persuade the audience, you try and inform them. You highlight the risks, not hide the risks."
In an exercise for the Qatar stock exchange in 2015, Iridium assessed how listed Qatari companies were faring from an investor relations perspective. Using a benchmark of criteria used to gauge quality in investor relations, Qatari firms scored 25 out of 100 compared to a global average of about 50 out of a hundred. In the second year, those companies had on aggregate improved, showing to him that change was possible, even if it is made on incremental basis.
Mr Schutzmann, who has lived and worked in the UAE since 2006. He worked as head of investor relations at Shuaa Capital, Dubai's oldest investment bank, between 2007-15, and has also served as chairman of the Middle East Investor Relations Association.
He took the plunge to start his own business on the encouragement of his friend and subsequently co-founding partner Tom Ashby, a former communications specialist and journalist, who served as The National's business editor from 2009-12.
Iridium's business model is two pronged, says Mr Schutzmann. On one hand, the firm offers consultancy either on a project-by-project basis or a retainer basis, while another revenue stream comes from third party technology used to help companies disseminate information. The company is also working on proprietary technology that it is developing to replace menial tasks that done by investor relation professionals, thereby streamlining the investor relations function for companies.
The business was funded by personal savings from both Mr Schutzman and Mr Ashby, both declining to reveal the exact sums revealed.
"I invested in Iridium because I believed the time was right for a pure-play investor relations advisory firm in this region," said Mr. Ashby.
"Investor relations has been underserved in the past and as the maturity level of companies, governments and capital markets increases, there is a growing need for professional investor relations advisory and technology services. Any investment in a startup bears significant risks, but having the right idea, the right people, the right product and the right timing greatly reduces that risk."
When it comes to headcount, Mr Schutzmann says he is trying to keep the business nimble and conscious of cost, and is therefore using a quasi-freelance model; in addition to three permanent employees, the company also contracts out to others when the need arises. Mr Schutzmann says that Iridium has no direct competitors at this stage, but that the difficulty of replicating the company's proprietary technology will make it difficult for others to intrude upon its turf.
Looking forward, Iridium's biggest potential for growth is likely to come from the increased integration of the Middle East, and particularly Saudi Arabia, into the global economy, as more markets in the region get included into key indices including the MSCI Emerging Market Index, a benchmark of emerging market stocks. Entrance of companies into these indexes will oblige companies to improve their corporate governance and investor relations functions in a bid to attract funds from international investors. Both the UAE and Qatar have been included in MSCI's Emerging Markets Index in the past few years, and it's looking increasingly likely that Saudi Arabia will also be included in the measure in the next couple of years.
That would open up exciting opportunities for Iridium in the region's biggest economy, Mr Schutzmann notes.