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In March this year, Belfast-founded data and analytics firm Diaceutics floated on the Alternative Investment Market (AIM) of the London Stock Exchange (LSE). This followed Fusion Antibodies, a contract research organisation, who joined AIM in late 2017. Before them, First Derivatives, headquartered in Newry, went public in 2002 and Kainos Group began trading on the Main Market of the LSE in 2015.
Not only have we seen these local firms make their stock-market debut but Kainos Group has also risen through the ranks, becoming the first Northern Ireland head-quartered firm to reach the FTSE 250.
The success of these four companies could set an important precedent for ambitious companies. But an IPO is not something that should be rushed into. Instead, companies need to fully understand the process, as well as the potential downsides.
A major advantage of an IPO can include the ability to raise a large amount of capital to reduce debt or fund expansion, particularly if a company has already exhausted other sources of financing.
A listing can significantly raise a company's profile beyond its existing market and add credibility. This can help open up opportunities as financiers, clients and suppliers will be able to access a greater quantity of information about the company and take comfort from the due diligence a company will have gone through to reach publicly listed status.
Once a company’s shares are traded, it is easier for investors to realise and exit investments. Listed shares can also become currency for acquisitive growth and can be used to incentivise management and employees. Share-based compensation can help align interests in business success and attract or retain talent.
The ability to separate ownership and day-to-day management of the company can also be a benefit giving management the freedom to focus on commercial strategy.
Achieving a listing, however, means a company will lose control of who invests and may find the shareholder base becomes much more disparate. Extra effort and reporting will be needed to engage with shareholders.
Other downsides to an IPO can include an inevitable lack of privacy as increased disclosure and reporting obligations place more commercial information in the public domain.
There will also be increased costs associated with meeting increased disclosure obligations. Senior management can find themselves spending considerable time dealing with new responsibilities, such as investor relations, not just running company operations.
In addition the enhanced corporate governance regime can require a step change in the approach to board composition and stakeholder engagement.
The successful admission, or listing, of increasing numbers of organisations shows that ambitious growing Northern Irish firms can hold their own at the next level. With Northern Ireland increasingly leading a number of industries with global expertise and serving more and more global customers, IPOs offer the advantages outlined above but also the opportunity to take a well-earned place on the international investment stage.
However, any business needs to carefully consider the costs and effort involved, not just in the listing or admission process, but in being a company with traded securities on an on-going basis.
While an AIM listing will not subject a firm to the UK Listing Authority's stringent regulatory regime it nevertheless brings extra scrutiny and administrative requirements. AIM is regulated by the LSE and firms must comply with the AIM Rules, which have, like the Listing Rules, been designed to maintain investor confidence in the market.
Directors must assume full responsibility, collectively and individually, for compliance with the AIM Rules and other applicable regulatory regimes, including the Takeover Code and the Market Abuse Regulation. Implementing processes to ensure timely disclosure of any potentially price sensitive information or transactions is therefore essential for a publicly traded firm.
Finding the right partners through the transition from private to public is key. Our experienced team can provide insight and expertise at every step on the path to IPO. We’ll advise on all aspects of capital markets transactions, including initial public offerings and secondary issues on AIM. Our team can also deal with all aspects of listing rule advisory work in relation to day-to-day compliance, corporate governance issues and transaction related advice.
If you would like to know more about the above or to generally talk through your firm's growth strategy and potential options, please do get in touch.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.
17 September 2019