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A real reluctance to play footsie

It is often commented that people in Northern Ireland don't like to talk about money. There's an unwritten rule that it's just not the done thing to crow about how much you've got and that how much you've got is nobody's business but your own.

Allied to the fact that most people still regard City high-flyers with suspicion after the financial turmoil of recent years, it is perhaps no surprise that local business people have been reluctant to become involved in the stock markets.

Northern Ireland has just three companies listed on the London and Dublin stock exchanges.

Andor Technology and First Derivatives are listed on the London Stock Exchange's (LSE) Alternative Investment Market (AIM) and Dublin's Irish Enterprise Exchange (IEX) market, while UTV is on the LSE and main Irish Stock Exchange.

The total compares unfavourably with the other regions. Wales has 15 publicly listed companies while Scotland, with its substantial financial services industry, has more than 130.

Whether it is just a lack of trust or understanding about what goes on in 'the City' or a lack of ambition on the part of our businesses, it seems clear that floating shares in a company is an option that is still not on the radar of most firms.

"It is a conundrum why we don't have more listed companies in Northern Ireland when you look at the statistics around Wales, Scotland, even around the Manchester area or even a large city like Leeds.

"Part of it is to do with the size and scale of businesses here. From a full listing perspective you need to have scale and there are only a certain number of businesses that will meet those requirements," said Mike Irvine from stockbrokers Davy NI.

He added: "Our culture is very much around private business, family-owned business. Bringing in outside shareholders is something culturally we've been reluctant to do. There's a much higher corporate governance benchmark for an AIM company than there would be for a private company. There's also a level of intrusion into what have traditionally been close-knit companies, which businesses are reluctant to have.

"It goes hand in glove with why we don't have more venture capital here. The answer is, again, that they don't want to give away their equity, they don't want outsiders in their company, they're not used to a culture where you have to do that to expand. There are exceptions, but not many."

Conor Walsh, chief executive of Andor Technology, said his company was confident of the benefits of listing.

"I don't think in our culture we like disclosing inner aspects of our business. When you are a public company everything is public - your salary, your bonus, your turnover, your profit, how much you have in the bank. Everybody can see it and write about it. I don't think the Northern Ireland DNA likes that," he said.

"Andor set out to be a global company so from the day our company started the founders recognised the opportunity was not just a UK or Irish opportunity."

Originally supported by funds from Queen's University, Andor went down the venture capital route, bringing in Crescent Capital before floating on the AIM.

Dealing with venture capitalists prepared the firm for going public by requiring it to put a functioning board in place with non-executive directors and organised reporting structures.

"VCs introduce those disciplines into a company because they want to know their money is being looked after," said Mr Walsh.

"They are looking at whether you have a global market opportunity. Have you shown you can grow the business, are you profitable and generating cash, do you have something that differentiates you. If you are going to get through the listing process you're going to need those sorts of characteristics."

Investors, of course, invest to get a return and so companies have to provide them with a way out - either through a trade sale, selling to bigger venture capitalists of going to the public markets.

Andor felt listing was the right way forward because it would allow it to remain independent with more control over the running and management of the business. A secondary benefit was that its profile was immediately raised.

"When you describe yourself as a plc it means you've had to jump through certain hoops to get that status and to maintain it. It gives people a degree of comfort that you are being properly audited, reviewed, you've got a broker who is monitoring you.

"It has more credibility to investors. It gives the impression and the feeling of a larger organisation and for small companies like us who are trying to grow it can help," said Mr Walsh.

That was also the experience of First Derivatives, whose clients include international invest- ment banks such as UBS and Goldman Sachs.

"One of the main drivers was the fact that when you are dealing with global blue chip financial institutions, and if they don't have transparency about your organisation in terms of financial stability, and they can't research you and get independent commentary from analysts, then you have a difficulty in convincing them to buy services and then products from you.

"We are selling a software product which they are going to trade on or use for their clients, and if they don't have confidence that you're going to be around next year, it's a big issue," said director Paul Kinney.

"Your financial performance is up there, your results are filed, you have a share price that is trading and you have the corporate governance procedures that being a listed company demands. That provides a lot of comfort that would be difficult to provide if you were a private company that only has to file abbreviated results at the companies office."

But Mr Kinney also notes there are big demands that mean companies must justify the move: "You don't make that decision lightly just because you are in a space that would benefit from it. There is a cost associated with it, an overhead in terms of time. You've got to be of a scale and a size that it makes sense to do it. It is unwise to do it too early and unwise to do it too late," he said.

Richard Edwards, chief executive of AIM-listed biotechnology firm Kiotech, lives in Belfast but commutes to the company's Nottinghamshire offices or to its projects in other countries.

He believes local firms should learn from successful listed companies in the Republic.

"Northern Ireland has been very parochial in the past, where a lot of companies have expanded to the borders and no further. That has not been the case in the Republic, where you had companies like (building materials giant) CRH that have expanded to the US and beyond," he said.

"Perhaps there is a lack of ambition in Northern Ireland or that people here maybe don't know how to work the City. But there's a lot investors like here, some very solid management teams. Maybe there needs to be some mentoring so people know where they can take their business."

Mr Edwards said firms need to be ambitious about growth and understand a stock market listing is not just a way to sell up and get cash out of a business.

"There are very good companies here that would be suitable for the AIM. It is a good slow exit for business owners but investors will want to see a management team keen to stay on board - it is not a way of getting out straight away. You need vision and strategy about what you want to do," he said.

"The AIM is more like the venture capital community. It gives private investors an opportunity to get in much earlier than they would 20 years ago. Once you've got a good set of shareholders and if you keep delivering for them, it opens up funds. If they are happy with management and if they believe in you they will keep funding you. When we made an acquisition in September we asked for £2m and raised £4.8m, we were two and a half times oversubscribed," he added.

Mike Irvine believes that up until the credit crunch many firms here have not really considered public listing or outside capital to fund growth because of the availability of debt financing.

"If a company is genuinely ambitious and needs capital to grow there are three sources of that - the public markets, private equity or debt. Over the last decade in Northern Ireland debt has been the favoured source of finance. That is now far less available," he said.

"The questions is, with the lack of availability of debt and the fact that debt for expansion for non-asset backed businesses is going to be scarce for the next five years in Northern Ireland, what are the other options. Perhaps we're going to have to get over that psychological barrier that stops companies wanting to take equity."