Make it your aim: Northern Ireland firms can look to stock exchange
Northern Ireland companies have tended to shy away from the stock exchange, but right now there are lots of good reasons to go for a public listing
Published 13/05/2014 | 11:06
The past 18 months have seen a strong pick up in the initial public offering (IPO) market in the UK. Yet Northern Ireland lags behind the trend, with a relatively low level of listed businesses.
Colin Walsh, managing director, Crescent Capital, and chairman of the CBI in Northern Ireland, even describes the level as "chronically low".
Crescent Capital is a Belfast-based venture capital fund manager. Their primary focus is on Northern Ireland companies operating in the information technology, life sciences and manufacturing sectors.
Mr Walsh told Business Month: "As it stands there are only two publicly listed companies in Northern Ireland. The takeover of Andor by Oxford Instruments earlier this year means that only First Derivatives and UTV Media remain. Andor was the last local company to go public and that was back in 2004. When compared on a per capita basis to Scotland or Wales, we should have dozens."
Once a company opts to go public it has several obligations. It must declare its directors and shareholders, file regular accounts and provide a full picture of its ongoing performance.
That, Mr Walsh says, is one of the main stumbling blocks for Northern Ireland business owners: "With continuous announcements about and analysis of a company's trading performance, publicly listed companies offer their clients much better visibility and security. People in Northern Ireland are cautious about this scrutiny, but realistically the worst thing that can happen is embarrassment over a poor performance.
"Even if a public company is performing badly they can still usually raise additional capital on the stock exchange to rescue the business. This is why [they] generally offer a more secure option for banks, allowing greater access to funds when required."
Mr Walsh urges more companies here to consider listing as a future move. He recommends that any emerging tech business generating over £10m in sales, with a strong growth story, should look into the possibility. More traditional businesses would need to have sales of over £50m to be seen as a contender.
"Choosing to go public brings added visibility. When Andor made the move, they were a university spin-out business. Even when they were securing global sales, that label stuck. Going public gave them more credibility with their clients and their suppliers," he says.
In order for a listing to be successful a business must be able to demonstrate an opportunity for strong growth, have the ability to make good margins and have a strong management team in place that are prepared to withstand the public visibility.
Mr Walsh says: "We are now seeing a wave of companies across Great Britain going public, but not in Northern Ireland. There are less barriers compared to a few years ago. Investors are ready to invest in new and emerging companies. The scrutiny needs to be seen as a positive as it drives good corporate governance and puts pressure on directors to run a professional business. Local companies may need someone to hold their hand to take them through the process and that is part of the problem we are facing. We don't have enough good role models. I am very concerned that we may have no public companies at all in a few years rather than the dozens we should have."
AIM is the London Stock Exchange's market for smaller companies. A range of businesses including early-stage venture-capital backed, as well as more established companies join AIM in search of access to growth capital. To join a company has to release a minimum of 15% of its shares, with approximately 25% required for the full exchange.
Mark Fahy, head of UK small and mid-caps at the LSE, comes to Northern Ireland monthly to raise awareness of the benefits of floating. He believes that, while a lot of work is needed to educate the marketplace, there is a growing level of interest coming from local companies.
"Each company needs to assess their own reasons for wanting to float. Perhaps they need capital, or want shares as an acquisition currency. They might want to maintain key employees, build credibility or open up broader access to finance. For some, it could be an exit strategy or simply the next step in the company's forward movement," he says.
Mr Fahy meets with interested business owners, taking them through the process. He engages with advisors, accountants, lawyers and venture capitalists through events and round table discussions, promoting the value of listing.
"Interested companies need to draw together a team of their own trusted advisors from a very early stage. They need to find people, with expertise in the market. This is the strongest pipeline we've seen in the IPO market for a long time and the support is out there. AIM has some positive changes coming up that will encourage more movement. From the end of this month it will be exempt from stamp duty, making it a great option for smaller, fast-growing companies."
Alastair Keith, corporate partner at lawyers A&L Goodbody, has advised on a wide range of transactions both at a national and multi-jurisdictional level. He specialises in acquisitions, venture capital, group reorganisations, joint ventures and initial public offerings.
He says: "IPOs are tied to the economic success of a region so for the last few years they haven't been a realistic option. We are now seeing that change and the outlook is healthy for 2014.
"Northern Ireland has a historically low level, driven by a reticence of local owners to put their companies in the public domain. This is an entrepreneurial society but many family-owned businesses don't want to give up the level of control that is needed."
Mr Keith is, however, noticing an attitude change. "There is a lot of ambition out there. Businesses are hoping to grow and they aren't discounting IPOs. With access to funding providing a barrier, the new generations of owners and directors are realising that this can be a good choice for them. I think we will see an organic rise in local publicly listed companies."
Going public can be an expensive process. The business will need to appoint a nominated advisor, or nomad, to help market the company ahead of listing. Accountants and lawyers are also needed.
Mr Keith says: "Listing can be more expensive than taking on other forms of finance, but what tends to happen is that when you are looking at how much you are hoping to raise you build the costs into that amount so it shouldn't impact on the business."
The message from advisors is that the market is good for IPOs at present.
There's a window of opportunity for Northern Ireland companies to take the next step if they are considering going public. It remains to be seen how long this window will stay open and whether any of our business owners will use it to take the leap into the public domain.