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Ask the Experts at The International Stock Exchange

Have you considered your strategy for partial, full or gradual capital exit?

6th April 2020, 6:00 pm

For Owner Managed Businesses, multi-generational family owned businesses and successful entrepreneurs – have you considered your strategy for partial, full or gradual capital exit?

We all have a lot to think about at the moment given the escalation of coronavirus and its effects but that is particularly the case for SMEs.  In a lot of instances, the short-term priority will be survival and the impact will be accentuated by the fact that many SMEs are owner managed businesses.

They are facing extreme uncertainty in their businesses at this time, are having to re-evaluate their short-term business plan and strategy and be agile in their activity.  As the weeks go on, for some, the focus will start to shift and senior executives, business owners and boards of directors will be revisiting medium to longer term aspirations and objectives.  Indeed, how to scale and grow their business during continuing uncertainty, whereby related to the virus and the ramifications of the economic impact thereafter, will be the next important area of focus.

At The International Stock Exchange, we regularly talk to SME business owners and their advisors in relation to taking companies ‘public’ and utilising a stock exchange listing process as a way to access new capital.  However, also we see companies listing to demonstrate transparency and good governance, build profile, satisfy investor demand/expectations and access a formal secondary market.

Another key area is capital exit, which in this context refers to a company seeking new shareholders to release existing equity share ownership.  This can include owner-managed businesses, including family owned businesses, where the principals want to release capital and potentially work towards their eventual retirement from the business.  Another example is entrepreneurs who have placed a significant proportion of their personal wealth into their business and now wish to realise some of the capital growth and efforts of their hard work.

In these cases, the major shareholders are often the managers or leaders of the business and they play a fundamental role in its operation and leadership.  Therefore, the ability to step away from a business and benefit from its apparent valuation is not always possible, as other investors like to see continuity and a well thought out succession plan.

As part of that succession planning – and a full or partial capital exit – business owners should consider listing on a regulated and recognised stock exchange, such as TISE.  A partial exit can be an option to consider. TISE’s free float requirement means that a proportion (c. 25%) of equity must be held in public hands upon admission (whilst also enabling the retention of a majority stake) and with the option for further equity release via secondary market activity at a later date.

The process for listing is straightforward and typically the Exchange fees will equate to £12,000 in year one (for admission and the first annual fee) and £6,000 each year during the life of the listing. There will be professional adviser fees as well, however the total package TISE offers is less in comparison to traditional exchanges.

Once listed, the trading of shares on the exchange must be carried out through a TISE Trading Member. Usually a company will appoint one of these as a market maker to enhance the liquidity of the stock and facilitate trades.  Our trading members have links with most brokers and investment platforms.

We are often asked at what point should a company start to consider the requirements of listing and as to whether listing should be part of its aspirations?  Early is our response!

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