Companies Look to London for IPOs
March 16, 2006--Tempted by lower fees and regulatory hurdles, more U.S. businesses than ever are opting to go public on the London Stock Exchange -- and exchange officials are now stepping up their outreach to drum up even more interest.
As part of the exchange's ongoing effort to promote its Alternative Investment Market as a small business-friendly environment for initial public offerings, representatives visited financial analysts and investors in Houston in March, with similar seminars scheduled for April in New York and Chicago.
Small and midsize companies are increasingly looking toward AIM because of its lower market-entrance fees and less-demanding regulatory landscape. A record 19 U.S. companies went public there last year, according to AIM officials.
Since its inception in 1995, AIM has held more than 1,900 IPOs, which have raised some $29 billion. There are currently 29 U.S. companies listed on AIM.
In comparison to the Nasdaq, which requires a minimum admission fee of $100,000 and annual fees between $21,225 and $75,000, AIM charges approximately $7,300 for each of its admission and yearly fees. Going public on AIM can also save smaller companies the costs associated with Sarbanes-Oxley and SEC filing requirements. New York Stock Exchange IPOs can be even more expensive -- a U.S. company listing roughly three million shares on the NYSE would pay approximately $250,000, for example.
Compared with a Nasdaq filing, small businesses may receive more immediate exposure to large investor bases by going public on AIM, said Anne Moulier, U.S. business development executive for AIM. Though Moulier cites the instant access to "blue-chip institutional investors" -- including Fidelity, Merrill Lynch, UBS, and others -- as the chief reason for the market's growth, she noted that AIM helps growing companies attract direct attention from market professionals.
"A medium-sized company can have two to three analysts covering it in the first two weeks," Moulier said.
In addition to requiring biannual earnings reports -- as opposed to domestic rules requiring quarterly reports -- AIM lacks Nasdaq's stock-offering minimums, which require companies to offer at least $8 million in stock. Such smaller-scale IPOs, Moulier said, allow growing businesses to have greater access to capital for growth.
While U.S. companies listed on AIM deal in everything from software to mining, it may be years ahead of domestic markets in its willingness to embrace burgeoning energy technology. Himesh Dhungel, president of Hamilton Clark, a McLean, Va.-based investment bank that has guided several U.S. companies through AIM IPOs, said that growing alternative-energy companies have been attracted to AIM instead of traditional venture capital.
"Europe has latched onto the idea of green technology and clean energy a lot quicker than the U.S. has," Dhungel said. "Finding institutional investors in Europe is a lot easier than it is in the U.S."
Still, pursuing the AIM path is not without its challenges. A London Stock Exchange-certified "nominated adviser" must officially review each company's financial status, and will perform much of the due diligence work required by the SEC. There are cultural challenges as well -- Dhungel makes sure his clients are conversant in what he calls "English English" and advises that U.S. businesses seeking to list on AIM should have a "European twist" that will allow it to flourish in international markets.
"It's a great market," Dhungel warned, "but it's not for everyone."