MH Article
PLUS - Quoted’s Stock On The Rise
2007 will probably be best remembered for the paralysis that seized the credit markets and the subsequent dampening effect this had on already slowing IPO activity. Bur for the corporate advisers who help young companies access the PLUS-quoted market, 2007 proved not just a resilient year for the market but one in which it made great strides in increasing its profile as well as the number and quality of companies listing.
218 companies are now listed on PLUS-quoted and corporate advisers are reporting more interest than ever both from UK companies and overseas firms. “I think last year was the beginning of real growth for PLUS-quoted,” said Charles Simpson of Saffery Champness Corporate Finance. “Certainly we’ve seen more activity on PLUS in terms of opportunities where we have advised. It’s not so much individual floats that stand out, it’s more about the number that are coming to PLUS.”
Not only is the number of companies listing increasing, the amounts raised are also heading upwards. A good example of this is the commercial and residential property investment company ACE Liberty & Stone whose floatation raised £1 million. Jon Isaacs of Alfred Henry Corporate Finance, the firm that sponsored the listing, said: “This demonstrates to people that where a few years ago it might have been anywhere up to £500,000 raised, larger fundraisings are taking place now.”
“We’ve got four or five deals going through at the moment which, given the general downward trend in the market, is significant of PLUS’s increased status. That’s a substantial increase on this time last year and we’re expecting that to continue. The calls that we’re getting in are calls related to coming on to PLUS. That shows an increased focus on PLUS markets not just from the UK but also from abroad and that can only be a good thing”.
The First London Securities float highlights the trend towards bigger companies and bigger fundraisings. The holding company of a group that acquires and consolidates investment banking and merchant banking businesses internationally, First London Securities is a PLUS-quoted company with a market capitalisation of £40 million. David Sinclair of Axiom Capital who advised the float said: “The fact that the company was happy to list on PLUS-quoted not AIM is promising and it is happy for the time being to stay with PLUS”
International companies are increasingly interested in PLUS-quoted and many advisers have received unsolicited phonecalls from overseas companies considering a list on the market, many of them from China or Central and Eastern Europe. It’s a sign that the reputation of the market is spreading beyond the UK. Gary Miller from Fisher Corporate said: “We listed our first Chinese company, a profitable biotech firm, on PLUS a couple of weeks ago. There are potentially more companies from abroad and that is an interesting opportunity.”
It’s a trend that Andrew Greystoke from Atlantic Law is seeing in this firm’s work as well. “At the moment we have at least four American companies who are seriously looking at PLUS-quoted and who have instructed us. We have two Chinese flotations already in the pipeline for this year and we’ve got our first French flotation and probably our first Brazilian flotation this year. We also continue to get significant interest from Australia.”
Importantly, last year saw increased interest in the market from institutional investors. “The key floats which stood out last year were the ones which attracted institutional investment. We’re quite hopeful that our nest couple of companies going on the market will attract institutional backing.” Said Tim Lyle of City and Merchant.
New status, new opportunities
An undeniable boost to PLUS’s profile last year came in the form of the Recognised Investment Exchange (RIE) status granted in July. The new RIE status applies to the PLUS-listed market, not the PLUS-quoted segment.
Tony Lane of Wedlake Bell said: “Being an RIE and therefore coming within MiFID’s new regulatory regime for markets gives a better profile particularly on the European business market. European companies wanting to get a London listing, either a primary or secondary listing, would maybe view PLUS as being more within the remit of the European harmonised regulations and slightly more familiar to them.”
The RIE badge means that PLUS-listed can now open its doors to companies that were previously unable to list for tax reasons. Stephen Clow of DMH Stallard said: “Having RIE status gives us an opportunity to look at listing REITs on PLUS’s new PLUS-listed market, and that is a development that we believe is very exciting. REIT’s so far have been the preserve of the largest property companies but of course with the market in property stock not being particularly wonderful over the last 12 months, they haven’t had the publicity that they deserve. We’re interested in REIT’s as a vehicle for small property companies and that’s something that we’re promoting amongst our clients.”
Keith Robinson from DMH Stallard added: “I work with an investment company who, once PLUS had announced the RIE status, queried whether it would be feasible for them to have a separate trading on PLUS or even move to PLUS. It shows there are people out there who are thinking laterally and that fives PLUS an added string to its bow.”
Aside from ensuring a broader market appeal, achieving Recognised Investment Exchange status for PLUS-listed represents a powerful marketing tool for the PLUS Markets as a whole and a change for it to sever any negative ties with its past incarnation, Ofex. It sends a clear signal to companies, advisers and investors that PLUS is now fully recognised by the Financial Services Authority and can be seen on the same footing as the LSE and other major European exchanges.
Andrew Greystoke of Atlantic Law said: “Having RIE provides status for the market. People looked at PLUS at the beginning of the year as ‘son of Ofex.’ Now they’ve forgotten all about Ofex and there’re looking at an RIE that’s also got an ability to float new companies.”
The heightened status of the PLUS-listed market has a known on effect in terms of PLUS-quoted’s profile. David Sinclair of Axiom said: “It highlights PLUS. We do a lot of international work and internationally, PLUS is relatively unheard of. As corporate advisers promoting PLUS, potential clients will have a look at the PLUS website and their first reaction is surprise that PLUS i9s much bigger and grander than they ever realised.”
As PLUS-quoted does not have the RIE status, it will lose any of its tax advantages however, as Andrew Greystoke of Atlantic Law pointed out. “We were worried that if it was going to become an RIE then the tax benefits would be lost but one of the most important things about PLUS-quoted as opposed to PLUS-listed is that it has preserved the tax benefits for UK residents.”
Finding its place in the world
As PLUS Markets makes major advances in terms of shaking off negative perceptions, where does PLUS-quoted now stand in relation to its competitors, particularly AIM?
The traditional view of PLUS-quoted is as a ‘stepping stone’ to bigger and better things – i.e. AIM and then, assuming everything goes well, even the official list. In the past it has been seen by many as a way of easing smaller companies with no experience of being public through the culture shock they will experience as a plc, offering an opportunity for directors stepping out of private ownership for the first time to get to grips with the regulation and increased scrutiny of being listed.
China Eastsea is an example of a previously PLUS-quoted company which has moved to ARM. Introduced to PLUS in 2005, the provider of software to the oil and gas industry has grown over the last three years and has tripled its revenue to £8.8 million.
However, it would be wrong to describe PLUS-quoted’s raison d’etre as purely offering a stepping stone to AIM. There is a definite sense amongst the adviser community that PLUS-quoted is slowly carving out its own distinct niche as a standalone market fulfilling the fund-raising needs of smaller cap companies. As AIM continues to mature in terms of average market cap, there is room opening up for a third market catering to smaller companies and PLUS-quoted is ideally located to move into that space.
Daryl Ashing of Ashings Accountants said: “There’s an element of horses for courses. There is overlap in some areas but in reality, they’re an ‘either/or’ depending on the client’s interests. If you’re looking at somebody raising a few million pounds, there’s an overlap but its not a situation I come across very often. Usually, if you want to make large sums of money having the kind of exposure a quote on ARM gets, AIM is for you. If you’re trying to find liquidity in your shares, raising relatively small sums of money, up to £1 million say, PLUS is the way to go because the cost is obviously a lot less.”
Cost of listing is one of PLUS-quoted’s major attractions for early stage companies. As AIM matures and looks increasingly towards the bigger ticket attractions, for those looking to raise relatively small amounts, PLUS-quoted offers a more cost effective way of accessing funds.
Charles Simpson of Saffrey Champness Corporate Finance said: “For instance on AIM it’s going to cost you a minimum of several hundred thousand pounds for an admission. On PLUS that can be done for considerably less and certainly adviser fees are kept to a minimum to enable companies that are starting out and with very small sums of money to have the opportunity to be listed. What you can do on plus now is raise the sort of funds that AIM was looking at 10 years ago which are no longer economical on AIM.”
PLUS-listed’s RIE status has recently succeeded in reversing the traditional direction of the traffic by getting companies previously listed on ARM to defect to the PLUS-quoted market. Isle of Man-based Shoprite, which operates a chain of supermarkets throughout Ireland, recently made the jump from AIM to PLUS-quoted. Even though the Recognised Investment Exchange status does not apply directly to PLUS-quoted, the company cited this as a key pull as well as the fact that PLUS-quioted’s average market capitalisation is more suitable to Shoprite’s size.
Smaller companies jumping from AIM to PLUS-quoted may be something that we will see more of in the future as companies wake up to PLUS-quoted’s potential as a suitable listings environment. Jonathan Pearce of Marriott Harrison pointed out: “A PLUS quote is still junior to AIM by some margin and AIM has attracted some sizable companies of late particularly because of the regulatory issues in the US. However, there is some overlap. Conversely, PLUS can be used as a stepping stone to AIM and some have moved up that way. There are plenty of AIM companies which would not be out of place on PLUS.”
PLUS-quoted also appeals to smaller companies whose primary objective is not necessarily to raise capital. “There are a lot of smaller companies that want a listing, be it for a valuation for their businesses, a potential exit, to incentivise staff or to acquire other businesses with paper,” said Alfred Henry’s Jon Isaacs.
Owing to the size of companies now listing on AIM, there’s the change that the smaller floats are completely overlooked, something which is less likely to happen on PLUS-quoted. A small company on AIM is essentially a small fish in a big pond but the same company on PLUS will command more attention.
Darryl Ashing said: “PLUS-quoted’s main challenge is to think about how it interfaces with AIM. I’ve been involved with companies that have moved over, such as My Home International. When it went to AIM, it was very keen to maintain its links with PLUS. Companies that are growing will move up to AIM and the main list and that’s what we need in a dynamic economy.”
Challenges and opportunities ahead for PLUS
Although PLUS’s successes with the new RIE status and trading platform last year have been hailed as a major step forward in raising the market’s profile, there is still a feeling among the adviser community that PLUS-quoted has some work still to do in terms of increasing liquidity on the market.
Many agree that PLUS-quoted’s main task is to keep strengthening the virtuous circle of attracting quality companies in order to win over investors, particularly institutional investors. Jonathan Pearce of Marriott Harrison said: “Although it may provide a route to AIM for some, PLUS needs to be more of a destination than a staging post. To make sure of this, it needs to keep building its image so that more institutions will see and take up the investment opportunities it presents. That way more aspiring companies will see that there is a market from which they can raise development capital at reasonable cost.”
It is ultimately the quality of the companies that will be the defining factor in attracting institutional investors to PLUS-quoted. Colin Ellis of The Hyde Partnership said: “PLUS has to continue down the line that we’ve seen over the last year. It has tried to get the quality companies to the market and that’s where we believe it really has to remain focussed. We have build up significant experience in the US and China for example, and recognise that with the influx from these countries all advisors must continue to assess these companies in detail to maintain the quality expected by institutional investors.
The profile of the businesses and of their management teams is extremely important. At The Hyde Partnership we continue to work with our clients after the listing has been obtained to enhance the quality and profile of the companies as this growth factor is what the institutions are looking for.”
With increased interest coming from overseas, maintaining quality will become more of an issue. AIM’s reputation has been tarnished somewhat un the past by certain overseas companies, many in the resource sector, listing without any specific project in which to invest the capital raised. PLUS corporate advisers are wary of similar problems occurring on PLUS. Keith Robinson said: “Some of the foreign approaches represent an opportunity but also a challenge. The challenge for PLUS is going to be to get the new business in with the overseas companies but to meet that challenge by expecting the corporate advisers to keep the quality high.”
PLUS-quoted offers an arena for smaller cap companies which AIM no longer provides, a fact which provides currency to attract the much needed institutional investors. Tony Lake of Wedlake Bell said: “There is an opportunity for PLUS to really offer something to those investors that are looking for good early stage growth which is beginning to be less the norm on AIM.” Although it seems obvious that it is the quality of the companies, not the platform on which they are traded that is most important, many funds have limited investment mandates and PLUS-quoted companies are often overlooked.
PLUS-quoted’s next main challenge is to win over the institutional investors. Tim Lyle of City and Merchant said: “I think PLUS Markets has to get out there, and I’m sure it is already, to lobby like mad to get institutions to invest in the companies. This snobbery about being a member of the LSE is irrelevant to the quality of the companies that you’re dealing with.”
David Sinclair believes that attracting investor interest is not only the responsibility of the exchange but also of the listed companies themselves. “Liquidity has always been an issue and it’s also an issue on AIM. The market and the companies on PLUS or AIM have to understand that it’s not a market problem but a company problem.
“If you go to a restaurant in the US, it gives the Nasdaq reference on the menu. If you like the food you buy shares, if you get food poisoning you sell the shares. There is an abysmal failure by public companies in the UK to promote their public company existence within their commercial environment. It’s an educational process that applies to PLUS and AIM. It’s down to the companies and their investor relations and public relations teams.”
Building on momentum
There is general optimism amongst corporate advisers that PLUS now has all the ingredients in place to capture the institutional investors, it’s just a question of continuing to spread the word about the advantages of the market and maintaining the quality of the companies. Colin Ellis said: “PLUS has been very good at communicating through their conferences about what’s happening in the market and how it’s changing. When it launched the new platform, that created an immense interest. It is up to us as advisers to companies wishing to join the market to continue to build on what has been achieved, for the companies on the market and for the investors, both private and institutional.”
The strength of PLUS’s management team is also a major weapon in putting PLUS Markets on the map. Tony Lane said: “One of the key elements to PLUS moving forward from where it used to be is the fact that it comes down to personality with Simon Brickles involved. I Don’t think that can be overestimated. His involvement and background adds definite credibility to the market. That is also a key component in raising profile and increasing credibility.”
Gary Miller agreed: “I think PLUS has got the potential. It knows what it has got to do and Simon Brickles has done this before on AIM. I also think that AIM is going to be far more choosy in the companies they allow on which will automatically force people to look to PLUS or at least I’m hopeful that will happen.”
After a year of achieving some pretty major milestones, PLUS-quoted now has its work cit out for 2008. Its challenge is to consolidate its position as an attractive environment for small cap companies. While no mean feat, general consensus within the advisory community is that this is well within PLUS-quoted’s reach.
In association with
Jonathan Pearce
Marriott Harrison
020 7209 2000
Jonathan.pearce@marriottharrison.co.uk
Jonathan Pearce, MH Corporate
Corporate UK
PLUS Market
20/02/2008