WHEN hospital operator HCA Holdings, Inc. (NYSE: HCA) raised $3.79 billion last week in the largest private-equity backed IPO ever in the US, it chose to host its investor relations information on a website run by Thomson Reuters.
That a company of HCA’s considerable resources and scale doesn’t have the know-how to create and host its own website for investors might come as a surprise to some, but it’s par for the course for newly minted public companies.
Even recently listed Internet companies like Demand Media (NYSE:DMD), Youku.com Inc (NYSE:YOKU), E-Commerce China Dangdang Inc. (NYSE:DANG) and ChinaCache International Holdings Ltd. (NASDAQ:CCIH) have opted to outsource their IR sites rather than build their own.
Of 79 recent US IPOs surveyed, 83% are hosted by two big vendors with close ties to the big stock exchanges, locking out other service providers from this important market. Meanwhile, a mere 8% of the IPO companies have built their own investor relations websites.
Thomson Reuters, NASDAQ’s Shareholder.com dominate
Thomson Reuters, which has a strategic partnership with NYSE Euronext, is the most popular vendor among the IPO companies surveyed, grabbing the website business of 38 companies or 48% of the market.
NASDAQ OMX is the second most popular vendor, with 35% of IPO companies choosing its Shareholder.com subsidiary to host their disclosure information.
The data show that market venue is a key factor in companies’ use of vendors. Shareholder.com dominates when companies list on the NASDAQ market, while companies listing on the NYSE heavily favor Thomson Reuters.
Of the 28 companies that use Shareholder.com to host their IR websites, only one is listed on the NYSE. All but 6 of the Thomson Reuters-hosted sites are listed on the NYSE.
There are slim pickings left for other vendors. PR Newswire handles the IR websites of 2 companies, SNL Financial won 1 company, and Capital Link also hosts just 1.
Innovation and skills stifled
The growing dominance of Thomson Reuters and NASDAQ OMX over the past decade has stifled innovation and competition in the US investor relations website market. Due to the many websites they host – now a combined total of almost 7,000 worldwide — the big vendors are unable to adapt quickly to new technologies and emerging practices.
In a recent ranking of the Global 100 websites by KWD, a division of King Worldwide, only one US company made it into the top 20 sites. Hewlett-Packard Company (NYSE: HPQ) ranked 16th, far behind the leading European websites.
A heavy reliance on outsourcing has also led to a lack of web publishing know-how among US investor relations departments. This helps to explain why most IR departments have ceded control over investor communications via social media to other departments inside their companies.
Startups locked out
Some potential good news is that competition in the IR website business is heating up with the entrance of the big PR wire services into the market. This could help to drive down costs and improve product quality, although that remains to be seen.
At the same time, the market is seeing the emergence of innovative startups such as Q4 Web Systems, which is leveraging leading-edge technologies to improve investors’ access to information.
In addition, a host of other firms are bringing specialized products to market that use new technologies such as social media and XBRL to help companies communicate their information to the market in more effective and open ways.
Of course, the new entrants face an uphill battle if the big exchanges and their favored vendors continue to block them from bidding on IPO business.