14 Feb 2013 12:46pm

Technology IPOs - increased options for UK companies

John Hammond, equity capital markets partner at Deloitte, considers how the new High Growth Segment at the London Stock Exchange will help increase the allure of the UK over the US for technology companies

With the launch of the London Stock Exchange’s High Growth Segment set for March, it appears that UK technology companies of all sizes will have a domestic listing to suit their needs. The High Growth Segment has been launched to appeal to technology and other growth companies that want to list in London but may not wish to apply for a Premium Listing (be it for eligibility or regulatory reasons) but would like an alternative to AIM, the London Stock Exchange’s junior market.

No UK technology companies have listed in the US in the last three years; but in the same period more than 30 UK technology companies listed on AIM

There is a popular belief that the UK capital markets are not supportive of technology companies and that there has been a flight of UK technology companies to list in the US. However, our analysis indicates that in fact no UK technology companies have listed in the US in the last three years; whereas during the same period more than 30 UK technology companies listed on AIM.

It appears, then, that smaller UK technology companies have already recognised the appeal of listing in London rather than in the US.

Smaller UK technology companies have, for some while, been choosing London rather than the US as their preferred listing destination and AIM can be seen to be doing its job as an incubator for UK companies. At the same time there has been a paucity of listings of larger companies both here and in the US. What is exciting about the launch of the High Growth Segment is that larger UK technology and other growth companies now have a real alternative to a Premium listing or joining AIM.

This can only be a good thing for London. Indeed, the London Stock Exchange has opened the High Growth Segment up to companies that are incorporated anywhere in the EEA, not just the UK. The expectation is, therefore, that European companies will also consider joining the High Growth Segment, further demonstrating London’s position as the leading European equity market.

What is key to this new initiative is that it provides another option to larger technology companies who wish to raise capital. UK technology companies have largely sought growth funding from the debt markets or from private equity. The High Growth Segment offers a real funding alternative.

The debt markets have been constrained and are seemingly expensive to tap, particularly in Europe with the banking crisis, and so many companies have been forced to look to their own balance sheets for expansion capital. Other UK tech business owners have turned to private equity investors for finance, though of course, they have had to cede some control of their business in doing so. The High Growth Segment should create a more level playing field and make the UK tech sector more competitive globally.

What is particularly encouraging is that the High Growth Segment is maintaining the high standards of governance. By promoting the segment as a transitional route to the UKLA’s Official List and by requiring a Key Adviser to be appointed, the London Stock Exchange is ensuring that appropriate standards of investor protection are in place.

The High Growth Segment fits neatly between AIM and the Premium Segment and should therefore prove attractive to both companies and investors.

Deloitte's John HammondJohn Hammond is equity capital markets partner at Deloitte



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