With business owners increasingly selling to private equity in recent years, Carolyn Gelling from The International Stock Exchange Group explores the ingredients that could make an exit into the public market more viable again for firms in the North West.
Attending the Pro-Manchester Corporate Finance lunch on 14th February seems something of a distant memory given the subsequent escalation of coronavirous (COVID-19) and its impacts on all of us. However, in the medium to long term, it is important not to lose sight of some of the key themes emerging from the sessions which are likely to remain relevant in the future.
At the time, I noted that many of the panelists focused on the increasing trend for business owners to sell their companies to private equity and that these houses still have a significant amount of dry powder available to be deployed to the right opportunities.
The other side of the same coin is that the number of companies ‘going public’ has been falling. Speaking to capital markets participants across the North West and through the UK, there is a consistent sentiment that the traditional stock exchanges offer regimes which are overly bureaucratic and expensive. This makes a public quotation unviable in the first place, or unsustainable ongoing, for all but the larger firms.
It was that similar tone which a few years ago helped us at The International Stock Exchange (TISE) to develop our proposition for listing trading companies. We have created a more proportionate and cost-effective offering which makes it viable for companies to list at an earlier stage. This provides owners of businesses in the North West with another option to consider as opposed to simply staying private, in particular as they plan for an exit.
"Sponsoring the Pro-Manchester Corporate Finance lunch gave us the opportunity to showcase TISE’s offering for listing trading companies at an earlier stage compared to traditional stock exchanges and as an alternative to private equity"
TISE is an established stock exchange, which has been operating since 1998 and has approximately 3,000 listed securities, with a total market value of more than £350 billion. We are very much part of the capital markets eco-system, we have received recognitions from authorities around the globe and we have listings from blue-chip corporates, sovereigns, investment vehicles and growth companies.
TISE’s offering specifically caters for companies that would be classified as SMEs. With the Listing Rules stipulating that a company must have a minimum market capitalisation of £1 million, the Exchange provides another option compared to bank lending or private equity for accessing capital to help a business scale-up. However, ‘going public’ and being quoted on a stock market goes far beyond the principal of seeking funding for growth; it is not always about what is often considered an immense exercise of running an IPO and which may not always lead to successfully securing investors.
We see companies seeking to list for many other reasons, which can relate to demonstrating transparency and good governance, building brand recognition, investor demand/expectations, a need to establish a market share price and have access to a formal secondary market. Sometimes a company can list equity through a placing of only an existing shareholding, yet the listing is a key part of their acquisition and/or organic growth strategy for the future in later attracting new investors in the secondary markets. One other key area is around capital exit.
Capital exit in this context refers to a company seeking new shareholders to release existing equity share ownership. This can include owner-managed businesses, including family owned businesses, where the principals want to release capital and potentially work towards their eventual retirement from the business. Another example is entrepreneurs who have placed a significant proportion of their personal wealth into their business and now wish to release some of the capital growth and efforts of their hard work, sometimes to release lending that was required to start a business.
The ability of many of these owners to step away from a business and benefit from its apparent valuation is not always possible, as investors like to see continuity and a well thought out succession plan. Indeed, trade sales or management buyouts are often negotiated to include retention clauses, where the owner/manager remains within the business for a period of time, often under the auspices and direction of the new owners.
It is for these reasons that business owners should consider listing on a regulated and recognised stock exchange, such as TISE, as part of that succession planning and a full or partial capital exit. A partial exit can be an option to consider. Our free float requirement means that a proportion (c. 25%) of equity must be held in public hands upon admission. This also means that the entrepreneur, for example, can maintain a majority shareholding (e.g. 75%) in the company.
Sponsoring the Pro-Manchester Corporate Finance lunch gave us the opportunity to showcase TISE’s offering for listing trading companies at an earlier stage compared to traditional stock exchanges and as an alternative to private equity. It also enabled us to highlight our wider business of listing REITs and debt, including securities issued by private equity groups to help finance their acquisitions of portfolio companies (which of course, themselves, could be exited via a listing at a later stage). In short, this demonstrates the way in which TISE can play a role in assisting owners to exit their businesses, no matter they are staying private or going public.
The original version of this article was published on Pro-manchester.
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