While it seems impossible to pick up a business magazine at the moment without reading about the fortunes of the Alternative Investment Market – or AIM – there has been scant media attention paid to an interesting alternative: the PLUS Markets Group, or plain PLUS. Yet PLUS is gaining in popularity, with over 200 companies “PLUS quoted” and more than 800 organisations using PLUS as a secondary market (“PLUS listed”). There are over 1,600 companies quoted on AIM, with more than 160 joining so far in 2007, compared to nearly 40 new quoted companies joining PLUS since January 2007. So who is PLUS suitable for, and what benefits does it offer companies looking to be listed? Here, Nick Winters, member of the Public Companies Group accountancy, tax and business advisory firm Vantis, looks at the role PLUS has to play for growing companies, and how it fares compared with AIM.
PLUS Points
PLUS, a completely independent equity market based in the City of London, offers a unique disclosure-based regulatory framework. PLUS started life as OFEX but was renamed and relaunched under new ownership in 2006. The new management has ambitious plans for the market, including seeking to fill the requirements of smaller companies that they feel are being left out by AIM’s tendency to be more heavily regulated and its shift towards larger companies.
PLUS is of particular interest to smaller companies looking to float, for whom AIM, and certainly a full stock market flotation, would be too much to undertake. For companies deterred by the potentially high cost of flotation on AIM – usually upwards of £300,000 – PLUS can be an easier route to Initial Public Offering (IPO) and a less costly way of raising finance. The average market capitalisation of a PLUS quoted company is just over £10 million - significantly lower than on AIM where it is now over £65 million.
Flotation is not just about attracting an extra injection of cash into a business to fund growth and development, however. It marks a sea-change in the way a business operates and should therefore never be entered into lightly. PLUS can offer more of a ‘toe in the water’ for companies still unsure about floating. No one should underestimate how fundamentally flotation impacts on every aspect of the business. Business leaders will go from getting on with their business with little interest from outside in how they run things to finding themselves forced away from their comfort zone to talk to advisers, potential investors and the media. Psychologically, relinquishing some of the control of the company is tough too. While flotation may be the right choice, any company thinking of doing so should consider all the alternatives first. This is one reason why a PLUS flotation can be a good option for companies that may prefer a more low key entrance to the markets and a less heavily regulated environment.
PLUS structure
PLUS is fully authorised and regulated by the UK Financial Services Authority and was granted Recognised Investment Exchange status in July 2007. This accords it the same status, rights, and privileges as the London Stock Exchange. There are currently seven market-makers, and PLUS is open to UK and overseas companies and funds. Its primary market specialises in smaller domestic and international companies representing a wide range of sectors and all stages of development. There are currently over 200 companies quoted on the primary market with a combined market cap of over £2.3 billion.
Its secondary market trading platform is based on a quote-driven trading model, which PLUS believes is the most efficient and effective system by which shares in small and mid-cap companies may be traded. Market-makers commit their own capital to the market, playing a key role in providing both price formation and liquidity.
Easy route to market
While AIM offers a simpler route to flotation than a full stock exchange listing, companies still need to count on a lengthy process during which time they will be pulled away from the heart of the business to focus on the flotation itself. A whole support team from nominated advisers (Nomads) and brokers to lawyers and PR professionals will also need to be engaged. All this is fine as long as the entrepreneurs behind the company’s success are sure that AIM is right for them. PLUS, however, offers a gentler introduction to the markets. As literature published by PLUS puts it, the market offers “an environment where management can devote as much energy as possible to doing what their shareholders want them to do – to run the business.’’
PLUS boasts a clear and straightforward admissions process, which can usually be completed in three months or even less. A prospectus is necessary only if raising more than €2.5 million. This can mean that it can be utilised as an alternative to pre-IPO fundraising which may otherwise be more difficult and costly. While the admission process to PLUS is deliberately flexible to encourage companies, all businesses wishing to float on PLUS need to:
- satisfy requirements – for applications not accompanied by an admission document, each application will be reviewed by an application panel comprising city practitioners and industry experts;
- appoint a PLUS corporate adviser, typically a corporate finance boutique, investment bank, accountancy practice or law firm approved by PLUS. The corporate adviser ensures that eligibility criteria are met and that the company is suitable for admission;
- demonstrate appropriate levels of corporate governance – which means having at least one independent non-executive director;
- have adequate working capital (12 months minimum);
- have no restrictions on the transferability of shares;
- issue shares which are suitable for electronic settlement.
As part of its flexible approach, PLUS offers three different routes to admission. Companies that are keen to raise profile as opposed to funds, or want their business valued independently, can do so without needing to produce even an admission document or formal prospectus. The next stage up is for companies looking to raise funds from a maximum of 100 investors; in this case, the PLUS Corporate Adviser will file a private placement memorandum which is less detailed than an admission document or full prospectus. IPO is also available to companies keen to raise money from the widest possible pool of investors available. If the offering is over € 2.5 million, a full prospectus is required, and simply a PLUS admission document for amounts below this.
Tax benefits
Floating on PLUS needn’t mean missing out on some of the attractive tax breaks that are available to investors either. Like AIM shares, investments on PLUS generally benefit from business asset taper relief which means gains on shares held for longer than two years are subject to just 10 per cent tax.
Strategic financial planning can also deliver Capital Gains and Inheritance Tax reliefs, eligibility for venture capital trusts and enterprise investment schemes, and shares can be invested in self-invested pension plan schemes (SIPPs).
So is there a negative to PLUS?
Of course PLUS won’t be for everyone. For larger players looking to raise significant amounts of funding, AIM, and even full stock market listing, could still be attractive. What PLUS does is offer an alternative at a different end of the scale.
For smaller, ambitious companies seeking to access equity finance on a public market, an improved profile and liquidity, PLUS is well worth considering as an alternative to AIM. For larger companies, too, which may already be traded on one of the other markets, PLUS can be a way of maximising visibility and liquidity in shares on a platform dedicated to smaller companies and their investors.
PLUS takes AIM
The table below highlights the important differences between PLUS and AIM markets, both of which opened in 1995.
PLUS
- Over 200 quoted companies
- Combined market value: £2 billion
- Average market capitalisation : £10 million
- Recommended if looking to raise
funds up to £10 million and no Prospectus required if raising less than €2.5 million
- Shorter, less expensive flexible admissions process
- Reporting under local accounting standards
AIM
- Over 1,600 quoted companies
- Combined market value: £107 billion
- Average market capitalisation : £65 million
- Recommended if looking to raise over £10 million
- Potentially longer and more expensive admissions process
- Reporting under IFRS
All data quoted in this article is to 31 July 2007. See www.plusmarketsgroup.com for further information.
For further advice about floating in PLUS or any other financial markets, please contact Nick Winters, or complete the online form below.