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FLOTATION

Kathleen Brooks
Q. I am thinking about selling shares in my business to raise capital. Should I consider a public listing?

A.The chief benefit of a public listing is that it can provide you with an injection of capital. Also, a listing can help raise the profile of the company. However, a public listing will change the ownership dynamic of the business and the owners need to remember that a flotation will dilute their stakes in the business, and they will also become accountable to their shareholders.

If you decide a public listing is for you then the process of listing is relatively straightforward. There are two exchanges that specialise in small and medium-sized companies: Aim and Plus Markets. Once you have chosen an exchange you need to go through an admissions process. The main thing a company needs to prove is that it is financially viable. “You need to prove to the exchange that you are a suitable candidate for life on the public market,” says Paul Haddock, head of capital markets at Plus Markets. “To do this you need to prove that you have a strong management team and that you can clearly articulate a growth plan and strategy for future development.”

Another consideration, says Haddock, is that typically an exchange will encourage a business float at least 10 per cent of its shares: “We want to ensure that once a company lists on our exchange there is enough liquidity to make it worthwhile,” says Haddock. If the owners do not want to float that much of the company then there can be problems ahead. “If there are not enough shares to satisfy demand then the stock price goes nowhere and the company is unlikely to see growth. It’s then hard to see the benefit of being on the exchange,” he says.

Q.I have decided I want a public flotation for part of my company, what is the process?

A.The first thing you need to do is check the legal status of your company. It needs to be a public limited company (PLC) to list on an exchange. After you have read, and agreed with, the rules and regulations published by the exchange, the next stage is to hire a corporate advisor who will help you with the admissions process. The process requires that a company fill in an admissions document that will contain the company’s history, details about the management structure, financial account data and a strategy for growth. For the admissions document you will need to hire an accountant to sign off on your financial data, and a lawyer.

"One thing to factor in before you consider listing is the cost of hiring the corporate and legal advisors, along with an accountant,” says Haddock. “The costs can add up, so you need to be in a good position to list before you embark on the process.”

The other key requirements of the admissions process, says Haddock, is that the company owners allow the stock to be freely transferable; that means that you can’t impose any restrictions on the buying and selling of the shares in the company.

After the admissions document has been submitted then the process can actually move very quickly. After that, the decision on whether the company can list, rests with the exchange’s regulatory team. So what happens on the first day the stock is traded? “That’s the easy part,” says Haddock. Firstly, an announcement is released to the market, which is sometimes picked up by the press, and once the opening bell tolls then you are a listed company.