Raising Finance

IPO listing tactics: Which exchange is best for your company?

5 min read

27 March 2014

There has been a flurry of listing activity in the last few weeks, with well-known brands Poundland and Pets At Home floating on the London Stock Exchange, swiftly followed by online takeaway giant Just-Eat announcing its intention to do the same last week.

Investor reaction has been positive, a promising indicator of how well these companies’ share prices will perform and investor confidence more generally. Yet for other companies looking to follow in their wake and take the plunge by listing in London, many questions abound. 

For any companies looking to raise money through a public offering, which exchange is best? Is the main exchange always the best option if a company is big enough? Or is being a bigger fish in the smaller AIM pool preferable? What of the opportunities provided by the Main Market’s as yet untested High Growth Segment?

A main consideration for companies choosing to list is the different regulatory and reporting requirements each exchange holds. The more flexible AIM market allows smaller companies to float shares without being subject to as much regulation as the main market, and with no requirements for market capitalisation or a certain number of shares to be issued. Companies seeking to raise funds by floating on AIM are not subject to such significant admission requirements and the obligations they need to comply with are not as onerous. 

The investor base is similarly important – the companies that float on AIM tend to be smaller and so are seen as a riskier prospect for investors. The recent well-known brands that have floated on the main exchange are businesses that will appeal to smaller investors – even retail investors – ordinary people who choose to buy shares in a company through the main market.

A company floating on the AIM market will be less concerned with the profile building potential of the main market (that often comes with the possible burden of a large and diverse investor base that AIM companies would find hard to manage). These companies are more likely to be at a stage in their development where the key is accessing institutional investors.

Status symbol?

A listing on the main market is often much more than just a way of raising funds – it represents a badge of quality and so can have numerous other benefits for your company. The main market holds itself out as suiting more ambitious or mature companies that operate on a global scale, and for the level of compliance and corporate governance that your business would have to meet to access the main market, your business will certainly need to be of a certain size and maturity to make a success of such a listing.

The pool of investors – both institutional and retail – will be larger for the main market and the information that they are able to access in order to make decisions about their investments is a lot more up to the minute with real-time share prices.

Halfway house?

More interesting of late has been the High Growth Segment (HGS) set up by the HSE. This was a new segment of the main market created in February 2013 and, up until Just-Eat’s announcement recently, not a single company had opted to list during its first year in operation. We may now see the tide begin to turn as more companies look to raise capital to fund the next phase of their growth strategy, benefitting from the status of listing on the main market without incurring the rigorous regulatory burden a premium listing. 

The HSG is aimed at mid-sized European and UK companies and while the main market carries a 25pc free-float requirement, HSG offers the lower requirement of selling a 10pc portion of the company. Yet some of the trappings of a premium listing remain – there’s still a prospectus to produce. The prevalent opinion that companies HSG seeks to attract will prefer a NASDAQ listing remains to be seen.

It’s clear that after many years of silence, the markets are full again with the chatter of companies looking to raise capital and of confident investors. Which market is right for your company will depend on the size and reach of your business, its ambitions and the resources it can dedicate to compliance and corporate governance.

Daniel Bellau is corporate partner at law firm Hamlins LLP.

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