London still needs a Plus Markets for small-cap listings
LAST week was a rollercoaster for the small-cap community, with uncertainty surrounding Plus Markets. It culminated in the announcement that Michael Spencer’s Icap has agreed conditionally, upon approval by the FSA and Plus shareholders, to acquire Plus SX and its Recognised Investment Exchange status.
Plus companies and advisers will be relieved at Icap’s commitment to continue support for and expansion of the small-cap market.
It has been intriguing to observe the varying announcements by Plus issuers over the last week, as they have considered their options in the wake of the uncertainty. Of the 100 or so, there are certainly several Aim candidates. The largest and best known is Arsenal FC. But an increased level of regulation and accountability is not necessarily desirable for the board of a high profile premiership club.
For others, Aim may have been their natural home for some time. Some of the stronger contenders have already hinted at this. One Media Publishing Group, the acquisitive music content owner, considers that there are advantages to being listed on another market – notably in share liquidity, business visibility within its industry and greater investor interest.
But Aim will not make sense for all Plus companies. Much depends on whether a firm seeking admission has appetite for, and free cash to apply to, a minimum transaction cost level of £150,000, the lowest price for Aim admission.
An Aim candidate must budget for a Nomad transaction fee of at least £50,000, plus commission on any funds raised, legal fees of £50,000 plus, reporting accountants fees of a minimum of £30,000, with lawyers, printers, registrars and Aim admission costs taking it up by a further £30,000. That is without accounting for equity research, essential to make the most of an Aim admission and garner some institutional interest.
It is questionable how interested many institutions are in the rump of sub-£10m market capitalisation companies that are on Aim today. Existing Plus firms should think carefully if they want to join.
Alternatives to Plus Markets include GXG, which provides a multi-lateral trade facility and enables settlement through CREST; BritDAQ, an order-driven share matching service for small to medium-sized enterprises, and ShareMark, which provides a share auction service at times and frequencies set by the issuer.
The other option is to go private. Zeta Compliance, the energy and health and safety compliance firm, has announced its intention to do just that.
None of the alternative trading platforms replace all the features of Plus SX. There’s a place for a small-cap market in London, focused on sub-£10m firms.
Corporate advisers are telling their clients to sit and wait. Until it becomes clear what Plus-SX’s fate will be – and given the alternatives available – that is the best strategy.
Daniel Bellau is head of corporate at Hamlins LLP.