Entrepreneurs & Exits

Wednesday, 15th January 2020

Blog provided by Carolyn Gelling from The International Stock Exchange Group

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

TISE is an established stock exchange, which has been operating since 1998 and has more than 2,500 listed securities, with a total market value of more than £300 billion.  We are very much part of the capital markets eco-system, we have received recognitions from authorities around the globe and our Exchange currently lists various types of securities for significant blue-chip entities, sovereign funds, investment vehicles and trading companies.

During late 2016 we started to place a greater emphasis on raising awareness of the TISE proposition for listing trading companies.  We were specifically looking to help companies that sat in the ‘scale-up’ phase and would be classified as ‘Small to Medium-sized Enterprises’ (SMEs), where there was clearly a ‘post-financial-crisis challenge’ in terms of accessing suitable capital, in amongst a plethora of options and pricing.

The requirements of listing on TISE stipulate that a company must have a minimum market capitalisation of £1 million, or thereabouts, which made our proposition more accessible and not just something that was only to be considered by the realms of multinational organisations.  From the list of trading companies on our Exchange, we have seen some key success stories over recent years, including Likewise Group plc, which is a Birmingham-headquartered floorcoverings distributor, listing on TISE in January 2019 to raise funds for working capital and future acquisitions. The company raised an initial £7m, taking the market capitalisation to £12m upon admission and since listing, the company has since raised a further £8m and undertaken M&A activity. There has also been an active secondary market in the shares.

‘Going public’ and being quoted on a stock market goes far beyond the principal of seeking funding for growth; it has other permutations too. We see companies seeking to list for many other reasons, which can relate to demonstrating transparency on a regulated exchange, building brand recognition and profile, because investors deem a listing necessary, and also often due to a need to establish a market share price and have access to a formal secondary market.  One other key area is around capital exit.

Capital exit 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 release some of the capital growth and efforts of their hard work, sometimes to release lending that was required to start a business.

In all of these areas the shareholders are often the managers or leaders of the business and sometimes referred to as ‘the business’ because of their 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 investors like to see continuity and a well thought out succession plan.  Indeed, trade sales or management buyouts are often negotiated to include retention clauses, where the owner/manager remains within the business for a period of time, often under the auspices and direction of the new owners.

It is for these reasons that we suggest that business owners should consider listing on a regulated and recognised stock exchange such as TISE, as part of that succession planning and a full or partial capital exit.  A partial exit can be an option to consider; our free float requirement means that a proportion (c. 25%) of equity must be held in public hands upon admission and with the option for further equity release via secondary  market activity at a later date.

The process for listing is straightforward. A company must appoint a TISE Listing Member as a sponsor to help the company with the listing application process and meet its continuing obligations. It is worth having early conversations with a potential sponsor but otherwise, owners or their advisers can gladly contact our offices in the first instance.

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.

In terms of share dealing once listed, trading 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!

The owners of a start-up are unlikely to either want it to be listed or be in a position to do so.  However, they should still ensure that they are adequately planning for the future, starting processes and procedures early to aid the journey later on, and as part of that, consider how an exchange listing could aid their ambitions for growth and/or capital exit in the future.

The International Stock Exchange are sponsoring our upcoming Corporate Finance Lunch. With an impressive line-up of speakers, it’s an event you won’t want to miss!