We begin our process by performing extensive due diligence on potential corporate clients. Through due diligence, we determine whether their stocks meet our institutional clients’ investment criteria. Our institutional clients typically look for companies that are exhibiting above-average top-line and bottom-line growth. In addition, our institutional clients seek to invest in stocks of companies that have the potential to generate significant free cash flow.
Once we determine that a potential corporate client’s stock meets our institutional clients’ investment criteria, we write an initial in-depth equity research report. Our report is usually twelve to fifteen pages in length, and details the company’s product or service, competitive environment, strategy, and management. The report also contains financial analysis and projections. We then distribute the report to our institutional clients in preparation for a “road show.”
The centerpiece of our service is a four-city road show whereby we take the managements of our corporate clients to meet with portfolio managers and other members of the investment community. Our road shows typically include three days in New York, one day in Boston, one day in Los Angeles, and two days in San Francisco. During the course of the trip, our clients will usually have one-on-one meetings with twenty-five to thirty-five portfolio managers. We also arrange teleconferences with institutional clients who are located in other cities.
The road show usually results in significant buying activity. There are two reasons why the road show generates buying in the stock. First, our institutional clients have significant buying power. Second, as we are very selective about which companies we take on as corporate clients, and because our institutional clients generally make money on our recommendations, we have a significant deal of credibility with portfolio managers.
The buying surrounding the road show usually creates a virtuous cycle of stock price appreciation. Our institutional clients are often quite influential. Once they have taken stakes, they are incentivized to involve fellow portfolio managers in the buying. In addition, the stock’s upward momentum generates attention. At the same time, momentum investors typically join the buying, which creates even further price increases. In addition, W.A.B. Capital will continue to support the stock as long as the fundamentals remain favorable.
There is one important caveat to be aware of when considering whether to work with W.A.B. Capital. When we perceive a deterioration in the fundamentals of a company, we advise our institutional clients of our perception. If we believe that the deterioration is significant enough, we will privately advise our institutional clients who own the stock to sell. In such situations, we continue to follow the company, provide advice when asked, and look to bring institutional investors back into the stock when the fundamentals improve. By maintaining impartiality, W.A.B. Capital preserves its credibility with institutional investors. Our credibility among institutional clients is the primary reason that we are so effective in assisting our corporate clients.
W.A.B. Capital receives its compensation in the form of equity, either warrants or restricted stock. We structure our agreements with corporate clients to ensure that we are involved over the long-term.