London Aims to Make Tech IPOs Easier
London Aims to Make Tech IPOs Easier
The U.K. government is looking to make it easier for high-growth companies to launch initial public offerings in London as part of its strategy to make the city Europe's high-tech capital. However investors, while welcoming the move, said it would not necessarily persuade them to recommend companies to float in London.
Proposals include a planned new route to the U.K. IPO market for high-growth companies, which is likely to feature reformed rules on free float, eligibility criteria and reporting requirements. Acting as a "launch pad" for companies seeking a full premium listing, the move was aimed in particular at mid-sized, high-growth businesses in Europe that are currently underrepresented on U.K. exchanges.
In an announcement light on detail, David Willetts, the minister for universities and science, said the government had looked at U.S. President Barack Obama's JOBS Act to see what lessons London could be learned.
"Some of the regulations in the London financial markets don't work well for tech start-ups," he said from the London meeting of Seedcamp. "We are working with the London Stock Exchange and the Financial Services Authority to do this... We want to end the cycle in which British firms sell out early or shift to another country as soon as they start growing."
Mr. Willetts said there were two main proposals:
- Companies will be able to list a smaller proportion of their shares if they want to float.
- There will be reduced reporting requirements for a fixed period of time.
No additional details were announced. The government said the eligibility criteria and benefits of the new route to market will be published before the end of 2012.
Marcus Stuttard, head of the London Stock Exchange's Alternative Investment Market, said the proposals were aimed at technology companies, but that any company meeting the yet-tobe-finalized criteria would be considered. He said they hoped to attract companies with a market capitalization of around £;200 million to £;500 million.
Rohan Silva, special adviser to U.K. Prime Minster David Cameron, said there was no set goal in mind. "It is up to the market, it is up to the investors," he said. "Our job is to make the rules more permissive. Who comes to the table, we will find out."
Barry Maloney, of venture capitalist Balderton Partners, estimated Europe could lose companies worth as much as $15 billion if the region's 20 to 30 biggest IPO-ready technology firms were to list in the U.S. However, Mr. Maloney said the announcement was not a panacea and that he would still be recommending New York for the two or three companies in his portfolio that would be thinking of a floatation.
"There are three problems," he said. "The coverage and understanding by the investor community of the business is not as good in London; the amount of liquidity in New York is much greater; and it's just easier to float in New York."
The announcement really only affected the final point: "This is an important step. But unfortunately the problems are not something government can do much about," he said.
It was a point echoed by Michael Acton Smith, chief executive of Mind Candy, the maker of Moshi Monsters. "The government announcement is a step in the right direction but it is not a silver bullet," he said.
Markus Boser, JP Morgan's co-head of TMT Investment Banking for Europe gave a cautious welcome to the proposals. "The problem is at the point of IPO - It can be difficult to establish value; the challenge when valuing growth companies is valuing in the abstract and it has been hard for European investors to price something on, for example, two year forward earnings multiples."
He said that allowing a company to float smaller amounts, say 10-15%, would allow the market to find the value of the company.
He also suggested that while New York would remain the market of choice for many tech start ups, for companies whose markets were predominately in Europe, having a London listing could make a lot of sense.
Reinout Koopmans, co-head of European equity capital markets for Jefferies, also broadly welcomed the proposals and the flexibility that smaller free float allows.
"It is very much inspired by some of the sell down tactics we see in the U.S. where it is very common to float a lower amount, let the stock mature and do a number of follow on offerings on the back of that once the market has become familiar with the company.
"I don't think it is a bad thing to look at that in London because there is certainly a segment of the market that will appreciate that kind of sell down strategy."
Updated @ 17:13 20 Sep 12: Added comments byMarkus Boser andReinout Koopmans
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