The London Stock Exchange (LSE) has unveiled plans for a niche market that will allow fast-growing companies to list shares and raise money while retaining 90 percent of the equity.
This 'High Growth Segment' is intended to be a launchpad for fast-growing companies – many of them in the technology sector – that are too big for the Alternative Investment Market (AIM) but are not yet ready for a premium listing, which would require them to give up 25 percent of the company.
In the past, many of these companies have gone to NASDAQ or sold out to an American technology giant, rather than consider listing on the LSE. The government has therefore been working with the LSE on a draft rulebook that will make floating in the UK a more attractive option.
The new segment offers a minimum free float of 10 percent, and is aimed at companies with a market value of between £300 million and £650 million. In order to qualify, they will need to show revenue growth of at least 20 percent over the last thee years, and to clearly set out their intention to progress to the Official List over time.
The High Growth Segment has been created in response to feedback from the investment community that there are a significant number of UK and European businesses with ambitious development plans that are currently under-represented on the equity markets.
“The UK has a world leading crop of high growth businesses, and the announcement of the High Growth Segment today by London Stock Exchange is an important step in creating the right environment for them to IPO in London,” said Greg Clark MP, Financial Secretary to the Treasury.
The full rulebook together with details of how to submit responses is available to download from the London Stock Exchange website. Interested parties are invited to comment by close of business on 8 March 2013, and the new segment is expected to go live in mid-March.
The news was broadly welcomed by high-growth technology companies, investors and industry groups alike.
“The flexibility of this new route to market certainly puts the LSE back on the radar as a consideration for companies considering an IPO,” said Peter Bauer, CEO of Mimecast.
“I am certain the reduction in the minimum float requirements, in particular, will attract those previously wary of the process of going public and help make London a beacon for tech entrepreneurs and investors.”
Michael Acton Smith, CEO of Mind Candy, said: "We are proud to be a British company and love being based in London. We welcome these new initiatives to make the London financial markets more attractive to the many fast growth tech companies that are based here"
However, Neil Rimer, co-founder of Index Ventures, warned that these changes are not a panacea.
“In order to give European growth companies robust access to public markets, the institutional investment community – portfolio managers, research analysts and agents – need to invest in understanding how growth models work and how they are valued to develop conviction about owning pieces of these companies,” he said.
Joanna Shields, CEO of the Tech City Investment Organisation and UK Government Digital Ambassador, added that the LSE’s move sends a strong signal to overseas firms that “Britain is open for business”.