With COVID-19 and Brexit providing the impetus to review the UK listing landscape, Carolyn Gelling explores the latest developments within the public markets, including at The International Stock Exchange (TISE).
TISE enables business owners to grow a company by raising its profile and accessing capital through a cost-effective listing on a stock exchange specifically designed to cater for SMEs.
The owners of a trading company may seek to list its equity on an exchange for a number of reasons.
These might include one or more of the following:
- Enhanced prestige and profile for the owners and their business
- An ongoing (secondary) market for the trading of the shares
- Access to a new pool of capital which will help take the company to the next stage of its development
- Demonstrable adherence to standards of transparency and governance
- A clearly defined price for the shares and a valuation of the business
- Provision of a stepping stone to a listing on another major global exchange
- The opportunity to retain and reward staff via equity-linked incentive schemes
- Route to partial or full exit
Bridging the funding gap
Angel investment, bank finance, alternative finance such as crowdfunding, venture capital and private equity are all forms of financing which businesses may use at various stages of their lifecycle but they are not always easily accessible.
An exchange listing can fill that current gap in funding by offering access to a new pool of capital because some investors can only invest, or have to invest a certain proportion of assets, in listed products. This is often mandated because they know that the company in which they are investing must adhere to specified standards of transparency and governance and that there is liquidity through secondary market trading.
A stock exchange listing also offers the benefits of providing a regulated environment which also enables businesses to access capital without requiring the owner to accede full control of the company.
How to list
For many business owners, listing on a stock exchange, for example via an Initial Public Offering (IPO), is likely to be a longer term objective.
However, it is imperative that business owners adequately plan for the future and as part of that, consider how a stock exchange listing could aid their ambitions.
For example, TISE’s approach makes it viable to go public at an earlier stage than might otherwise be possible using traditional stock exchanges but there are still requirements to be met which need to be addressed as part of the preparation for going public (‘IPO readiness’).
Who are your advisers?
Companies will often kick off the process by appointing/consulting one or more of a range of advisers, including corporate finance advisers, lawyers, accountants and tax advisers, who will be part of your team to assist through the listing process.
What type of listing?
The team will need to identify the way the company is going to be brought to market. This can be done by one or multiple methods, for example:
- an introduction
- an offer for subscription or sale
- a placing
How will any capital raising be achieved?
If the aim is to raise capital in the primary market then it is important for the company to work with its advisory team and especially the corporate finance adviser and any investor relations consultants, to attract commitments from investors, whether retail or institutional.
Are there exchange-specific advisers who need to be appointed?
Companies considering a listing on TISE should have early conversations with one or more of the approved TISE Listing Members in order to ensure the process runs as smoothly as possible.
TISE offers certainty of its listing requirements, including a freedom from EU legislation and regulations, to adopt a proportionate approach tailored for SMEs.
The main requirements for listing are as follows:
- The company must be worth at least £1 million, although the Exchange may permit a lower value
- At least 25% of shares must be in ‘public hands’ (i.e. not those of Directors and therefore creating a market), unless otherwise agreed by the Exchange
- Three years’ audited annual accounts, although this does not apply if the company has been operating for a shorter period and there may also be other exceptions
- Directors must provide a statement certifying that the company has sufficient working capital for at least 12 months or otherwise, how they propose to provide such capital to ensure its continued ability to trade.
Ultimately, upon listing and ongoing while listed, the issuer must provide sufficient information, financial or otherwise, so that all market participants, including investors, are informed of any material factors which might affect their interests.
A listing on TISE enables a company to demonstrate that it adheres to the standards of transparency and governance of a regulated market. This is comforting to investors – it may expand the potential pool of available capital – and it is important for the future development of the company.
The convenience of TISE allows a company to become familiar with the requirements of being quoted so that it is better prepared for the transition to being listed on a major global exchange, where appropriate. In that sense, TISE might be viewed as a ‘stepping stone’ or an ‘incubator exchange’.
Post-admission & secondary market
In order to protect investors and ensure the integrity and efficiency of the market, post-admission a company listed on TISE is required to comply with its continuing obligations.
A company must have a Sponsor, which is eligible to act in respect of the equity of trading companies (Category 3), appointed at all times while it is listed. The Sponsor is able to assist a company in meeting its continuing obligations by communicating with the Exchange/market via an online portal.
Under the Listing Rules, there is a requirement to notify Exchange/market of certain information, which includes: market data; routine changes to offering documents; intended/impending corporate actions; AGM/EGM notices and resolutions; annual and interim accounts; changes related to directors; and changes related to auditors and advisers.
Failure to keep the Exchange/market updated (i.e. breaches of the Listing Rules) may lead to enforcement action and persistent breaches may lead to administrative fees, suspension or ultimately the delisting of the issuer’s securities.
A key element of continuing obligations is ensuring that the Exchange/market is kept informed of all information which would impact the price of, or trading in, the shares.
All shares must be tradeable (i.e. freely transferable) and secondary market trading on the exchange must be carried out through a TISE Trading Member. Usually a company will appoint one of these as a market maker – potentially to work in conjunction with the corporate finance adviser and investor relations consultants – to enhance the liquidity of the stock.
As you will see in the case studies section below, Likewise Group plc raised an initial £7 million and has raised a further £8 million since listing, with 15.6 million shares traded at a total value of £3.9 million from admission until the end of September and during which time the share price has risen from 10p to 33.25p.
Trading on TISE has been growing in recent years and in 2018, there were 59 million shares with a total value of £92 million traded on the Exchange. This is greater than TISE’s traditional competitors in listing debt securities but less than some other equity markets, although the example of Likewise and other equity securities listed on TISE shows that it can provide a suitably liquid market in relevant stocks (and in a more cost-effective manner).
Latest SME News at the Exchange
As we remain in the grips of the COVID-19 pandemic, ‘twenty-twenty-one’ looks likely to be another year that will remain etched on our memories. The world continues to fight for the abolition of the pandemic and as individual businesses, we each work through the effects of its ongoing and longer-term ramifications. It has certainly been a profound start to a new decade thus far, and after the events of 2020, what have we noticed in terms of new stock exchange listing trends and what do we anticipate for this current calendar year?