It has issued a consultation document proposing how the new segment will work and setting out the criteria for eligibility. The intention is to have it up and running in March.
The LSE says that its decision comes in response to feedback from investors, sell side participants and venture capitalists which indicates that many UK and European businesses with ambitious development plans are under-represented on the equity markets.
The segment will provide a transitional route for fast-growing companies that are looking to be included in the Premium segment of the Official List. It will offer them a transitional route to the List, and a greater choice in raising capital. The investment community will also benefit from wider growth opportunities.
Under the proposed new rules, a company will be eligible for admission if it meets certain criteria, including: an historic revenue compound annual growth rate of 20% or more over a three-year period; it is incorporated in the European Economic Area and is commercially active; it intends a minimum 10% free float; and it publishes an approved prospectus. It will also have to set out clearly its intention to move to the Official List over time as it becomes eligible.
The Stock Exchange’s announcement has received a warm welcome from the business community. CBI director for competitive markets Matthew Fell said that the initiative would give more high-growth companies better access to capital and enable them to unlock their potential.
KPMG’s equity capital partner John Hammond said that analysis the firm had carried out shows that smaller UK technology companies had been choosing to list in London, rather than the US. “AIM has been doing its job as an incubator for UK companies," he said. "What is exciting about the launch of the High Growth Segment is that larger UK technology and other high growth companies now have a real alternative to a Premium listing or joining AIM and that can only be a good thing for London.”
ICAEW head of enterprise Clive Lewis agreed. At the moment, he said, too many high growth businesses ended up as a trade sale. However, he did add a note of caution, saying, “High growth companies are usually associated with high risks and the challenge will be to ensure appropriate standards of investor protection are maintained.”
The development opened up new opportunities for accountancy firms outside the Big Four to act as key advisers to the issue, he said, and pointed to the ICAEW’s Corporate Finance Faculty for the help and support they might need to achieve and maintain the role. Under the proposed rules, firms that want to act as advisers would need to be approved by the Stock Exchange.