Capital Partners Securities:

Transcription

1 Securities: The London Stock Exchange (LSE) & NYSE-London Standard Segment Listing

2 Executive Summary LSE/NYSE-London s new entry route Standard Segment (vs AIM) in the main regulated market, provides higher liquidity and fund raising power, with higher prestige (main board-regulated), lower regulatory burden and lower IPO costs. The Standard listing segment of the main regulated market is now opened to UK companies (compared with the junior, unregulated and unlisted AIM market). Companies listed will get a bigger presence by becoming part of the main market rather than a junior unregulated market. Reduced listing and on-going costs (no need of Nomad/Broker during or after the IPO). Lower and less stringent regulatory and disclosure requirement in the standard segment than in AIM. Companies listed in the Standard Segment only need to comply with the minimum EU Directive prospectus and disclosure requirements. Newly formed companies can also list with a minimum market capitalisation of 700,000 and minimum float of 25% in public hands. AIM market may not be appropriate (in terms of liquidity and tradability) for companies with market capitalisation below US$100m according to independent reports. Value of shares and number of bargains traded in the main market are significantly higher in the Main Market than in AIM (for example in December 2009, number of bargains and value traded in the official listed main market were 40 times higher than in AIM, showing higher liquidity and tradability for the official market vs AIM). During 2010, the main market raised 10x times more new fresh IPO money than AIM and it had more number of IPOs than AIM (first time in years). Currently in the main market, the majority of listed companies are in the Standard Segment (1586) and for example, the largest number of admissions in Dec 2010 (12) were in the Standard Segment. Once the Prospectus compliant with EU Prospectus Directive is approved by the UK Listing Authority UKLA for the listing into the Standard Segment, the same prospectus can be used for additional cost-effective listings in any other EU-Regulated Stock Exchange increasing liquidity options for companies (something not available to an AIM Admission Document). 2

3 Advantages of the Standard Listed Segment vs AIM The Standard Listing Segment provides higher visibility to listed companies by becoming part of the main official regulated market (rather than a junior unregulated and unlisted market). The Standard Listed Segment of the main official regulated market is now opened to UK (and foreign) companies providing a real alternative option to AIM. AIM requires the appointment of a Nomad and Broker at all times (as mandatory) increasing the operational costs of remaining quoted in AIM vs the standard listing. It is also worth noting that the AIM Rules impose more onerous obligations relating to reporting and disclosure requirements than those applicable to companies with a Standard segment listing, including the need for shareholder approval for certain substantial transactions. Independent academic research has shown that AIM may not be appropriate (in terms of liquidity and tradability) for companies with a market capitalisation below US$100m. A letter sent by the London Stock Exchange to the FSA ( mentions the possibility of a regulatory arbitrage between AIM and the standard segment due to the prestige of a listing in the main market with lower regulatory disclosure. There is a pre-conceived idea that the main regulated board of the market is only for mature and very large companies. The new standard segment changes this, as companies with a market cap above GBP700k are acceptable, as well as companies with three years or shorter period of financial audited accounts. We believe that a listing in the new standard segment can be achieved at a fraction of the average costs of an admission to AIM (saving costs to smaller companies wishing to gain a listing status in the main market). 3

4 AIM may not be appropriate for small firms at this moment Small companies should not list on AIM and existing ones should be encouraged to migrate to other markets, according to the majority of the market s participants. A survey of AIM advisers and companies found that many believe that the sheer number of firms listed on the market is to the detriment of liquidity and makes it harder to raise a business profile. The survey, conducted by accountancy firm Mazars, found that 52% of companies and 56% of advisers think that smaller companies should leave the market and trade elsewhere. Currently AIM has over 1200 companies listed on it and its illiquidity is being compounded by the economic downturn. Advisers are concerned that some businesses have and are looking at delisting rather than paying the costs of remaining on the market. The above survey suggests that some of AIM s problems could be solved by attracting fewer but larger companies, and also with rules changes such as a minimum limit for free floating shares upon admission and by migrating inactive companies to a bulletin board listing. 4

5 AIM may not be liquid enough for small companies... The AIM trading market is comprised of almost 100 AIM-authorized brokers, plus institutional investors including many recognized in the U.S. such as Fidelity, Schroder, Merrill Lynch, UBS and Goldman Sachs. This investor base is internationally focused and utilizes comprehensive research coverage for international companies. Given both the investor base and the involvement of the nomads and AIM-brokers, AIM liquidity and analyst coverage for mid-cap companies may be better than those companies can find on NASDAQ. One independent study found that, for the first quarter of 2006, AIM had better liquidity for stocks in the 50 million to 100 million pounds (i.e., $100 to $200 million U.S.) market cap range than NYSE, LSE, NASDAQ, or EURONEXT. The increased liquidity enhances exit potential for large investors at both the primary and secondary offering stages... Source: However, many observers think that AIM, even after losing several hundred minnows during the past couple of years, still has too many companies with a market capitalisation below 20m. Furthermore, the number of institutional investors interested in companies with market capitalisations below 50m is continuing to shrink Source: Financial Times Article Plus takes stock as defections to Aim continue 28 December 2010 ( Companies with market capitalisation below US$100m may not be well suited for AIM, as they may not benefit from liquidity advantages in AIM 5

6 AIM may not be liquid enough for small companies (cont d) A research by the London School of Economics (LSE), Anne Fremault Vila and John Board ( have found that the majority of AIM stocks (most of which are SMEs) trade infrequently, with trades often clustered around a few days. This study found that the majority of AIM stocks to be further characterised by higher price volatility and wider spreads, indicating that for the majority of AIM stocks, immediacy risk is an issue of concern. This study also found that a higher market capitalisation in AIM and a higher free float both contribute to a larger number of trades, lower trade concentration, lower price volatility and lower effective spreads. 6

7 Comparative trading numbers (Official Market vs AIM) speak for themselves In the month of December 2009 alone, there were approximately 1,230 AIM quoted shares. There were 224,454 bargains traded in AIM, for a total amount of 2.15bn. In the same month of December 2009 alone, there were approximately 1,147 Main market listed companies in the London Stock Exchange. There were 9,3m bargains traded, for a total amount of 98bn. In summary, value of shares and bargains traded in the main official regulated listed market in December 2009 were around 40 times higher than in AIM (showing the higher level of visibility, liquidity and tradability that companies have in the main market vs AIM). 7

8 1586 companies were listed in the Standard Segment at Dec 2010 (and the list is growing) There were 2646 companies listed in the main market of London (LSE & NYSE-London). Out of these 2646, the majority were listed in the Standard Segment (or 1586). You can check the list at There were 12 issues in the Standard Segment in Dec 2010 (the list can be checked at 8

9 There were 18 admissions in the main market (Dec 2010). 12 were in the Standard Segment 9

10 In 2010, the main market raised 10 times more new IPO money than AIM. New fresh IPO money (10x bigger in the main market than in AIM). Source: 10

11 In 2010, for the first time in years, there were more IPOs in the main market than in AIM. Traditional AIM had more IPOs than the main market. However, in 2010 (when the Standard Segment was formally opened) the main market had, for the first time in years, more IPOs than AIM. Source: 11

12 Once the Prospectus is approved, it can be passported to any other EU-Stock Exchange Passporting is part of the EU Prospectus Directive as a step towards a single European market in the financial services, enabling companies to raise capital across the European Economic Area on the basis of a single prospectus. In this respect, once a company produces an EU-compliant and approved prospectus by an EU-local regulator, the same approved prospectus can be used to conduct a listing in another EU-regulated Stock Exchange through the passport mechanism. For example, a Prospectus approved by the UK Listing Authority (UKLA) can be used immediately for a listing in the Frankfurt or Madrid Stock Exchanges without any modifications (increasing the liquidity options for the company). The above passporting facility is not available to an AIM Admission Document (as AIM is not a regulated market and the Admission Document is not approved as a Prospectus from the EU Prospectus Directive point of view). 12

13 Summary Standard Listed Segment vs AIM 13

14 Summary Standard Listed Segment vs AIM 14

15 Why working with? CPS offers a broad portfolio of services for medium-sized companies CPS provides services to mid-cap US, European, Asian, African and South American companies that are traditionally underserved by major investment banks. CPS has a pre-eminent team of investment bankers with a wealth of experience in the Telecommunications, Media and Technology (TMT), business & support services, real estate, financial services, natural resources and energy sectors. CPS is also part of of the Group ( which has Investment Banking, Venture and Wealth Management operations in Europe, the US and Asia. Group (CPG) is regulated by the FSA in the UK. Integrated Finance service to act as the adviser to the listing in the Standard Segment of the main regulated market of the London Stock Exchange and PLUS Markets. Stockbroker member of the London Stock Exchange and PLUS Markets (as an Appointed Representative of Midas Investment Management Ltd). 15

16 We are developing a Global Network * * * * = Offices: Los Angeles, London, Hong Kong * = Additional : Frankfurt, Miami, Madrid, 16

17 Why choosing London to list? * = * = 17

18 The Flotation Process Is now a good time for you? Benefits To use quoted paper to achieve growth: Access to capital for growth and/or acquisitions; and Use of paper as currency for acquisition The ability to provide liquidity for shareholders Broaden shareholder base both with retail and institutional investors The ability to build up brands and industry credibility through increased profile and publicity The ability to incentivise key staff through use of shares and options Opportunity for equity release Drawbacks Costs of float Costs of maintaining quotation External reporting, regulatory requirements and compliance Visibility and volatility of share price Liquidity of share dealing for smaller companies 18

19 Flotation Criteria and Pre-Float Issues Key characteristics of a potential float candidate Looking to expand In a changing sector Proven management team Consolidation opportunities in industry Pre-Float issues Rationale for float Funds to be raised / equity released Standard Segment of the main official list vs AIM? Valuation parameters Review of Board (compliance with the Combined Code) Appointment of Advisers Accounting standards and issues Timing of float 19

20 Valuation Methods Method and characteristics: it is important to establish the amount a company needs to raise and how it plans to use these funds Discounted cash flow All cash flows and costs of float P/E ratio Recent transaction multiples Comparable quoted companies Revenue Ratios Net Assets Sector specific e.g insurance, property No relation to cash generation Industry measure Specific to trade / sector 20

21 Choosing your Advisers Advisers required Adviser Reporting Accountant Lawyers to the Company Lawyers to the issue Financial PR Receiving Agent and Registrars 21

22 Financial Adviser and Broker ROLE OF CORPORATE ADVISER The corporate adviser will advise on: Valuation (with Broker) Pre-float issues (e.g. Board formation) Market and timing Selection of other advisers Preparation of the prospectus Project management of the process and advisers ROLE OF BROKER The broker will advise on: How to raise the money from the investing community Marketing strategy to investors Valuation Provide a meeting list of institutions and other investors to present to What you should be looking for: Experience, knowledge, expertise Which personnel will be doing the work? Can you rely on them to deliver (and consider alternatives)? Contacts with regulatory organisations What you should be looking for: Adequate research (external or internal) A salesman who can sell the story Contacts with key investors both retail and institutional 22

23 Reporting Accountant and Solicitors ROLE OF REPORTING ACCCOUNTANT Reporting Accountant will prepare: The Long Form Report (financial due diligence) The Short Form Report Working capital adequacy Profit forecast, if applicable Specialist tax advice What you should be looking for: An understanding of your business and the issues facing it Experience of public company circular work Tax expertise ROLE OF SOLICITORS Solicitors will advise on: Drafting and verification of prospectus document Directors responsibilities Review company legal and internal and external contractual arrangements (legal due diligence) Advise on the underwriting/placing agreement What you should be looking for: Experience and knowledge of the process and breadth to cover your business 23

24 Listing Timetable 24

25 Responsibilities after listing Company governance General financial PR Regular reporting Regular communication to shareholders and potential shareholders Adviser Compliance with statutory requirements and corporate governance Make announcements on RIS Reviewing annual reports and other financial information Reviewing class tests etc Broker Ensuring communication with shareholders and potential investors Ensuring adequate levels of research (independent / in-house) Maintain a liquid market (with market makers) Further fund raisings 25

26 Contact Us Please find below our main contact details: Address: 33 St James s Square London SW1Y 4JS Switchboard: +44 (0) Fax: +44 (0) Web: info@-.co.uk 26