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Keeping a float

IFAs watching their clients&#39 stockmarket investments plunge over the last year might feel wary of subjecting themselves to the same rollercoaster ride.

Lighthouse, Millfield, Kingsbridge and Inter Alliance are among IFAs who have already taken the plunge and are listed on the Aim.

Cavanagh Group and Ber-keley Wodehouse are set to follow. DBS, Countrywide, IFA Network and Financial Options are present on the main exch-ange as subsidiaries of Misys, which has recently just drop-ped out of the FTSE 100. Towry Law was a listed company prior to its purchase by AMP.

Aim functions as a proving ground prior to a main market listing with less onerous admission criteria. There is no minimum amount of shares that have to be in public hands and no minimum market capitalisation. It was launched in 1995 by the London Stock Exchange as an international market for what it terms “young and growing” companies and currently has a market capitalisation of around £12bn.

A distinctive feature of Aim is that the prospective company has to appoint a nominated adviser, or “nomad” for the flot-ation and after. Brewin Dolphin Securities director of corporate finance Elizabeth Ken-nedy is on the LSE&#39s register of nominated advisers.

She explains the role: “We are basically the project managers, co-ordinate the advice to the company, settle the time table and explain the various mechanisms. Our role is semi-regulatory – the exchange will look to us to ensure the advice is correct and come to us if there are any breaches. The cost will depend very much on the state of the company, but will consist typically of a fixed fee and a percentage of funds raised.”

Lighthouse chief executive Matthew Goldsmith, who has recently gone through the process, says it is not as simple as just instructing a nomad. You have to convince them to take you on, that you are worth promoting to investors, he says.

Many of the nominated advisers also act as brokers, raising the funds but if they do not the company also has to instruct a nominated broker.

Accountants, too, have to be instructed as well as lawyers to put together the prospectus and all relevant information about the company. The law-yers will carry out the due diligence, ensuring that all is properly and accurately des-cribed, which can be a lengthy procedure. In addition, the nomad will appoint its own team of lawyers to oversee the due diligence.

Kennedy suggests the company interview two or three firms for each function and seek advice from them about other recommendations. Goldsmith recommends selecting the teams carefully. “You will be living in each other&#39s pockets for the three months,” he says.

A PR agency also has to be engaged to get your story across and to assist you with your presentations, says Goldsmith.

Together with the broker, the firm has to actively solicit investors. This entails meeting prospective firms and getting the message across of what the company is about. Institutional investors, who take a longer term view, are particularly important for a successful flotation. If insufficient interest is not drummed up, the flotation cannot go ahead.

Fairly deep pockets are required before contemplating an Aim flotation. The cost of employing these teams of professionals is obviously considerable. And while some of the fees are contingent on a successful flotation, some have to be borne by the company up front.

Given the vagaries of the market, a flotation could be cancelled for reasons beyond the control of the company, leaving them severely out of pocket. Lighthouse raised £4m from its flotation but £500,000 went on the costs of the process.

Kennedy says for some companies it could be better to stay private – a stockmarket flotation listing is only appropriate for a company that wants to grow in a public arena.

Being a publicly listed company does entail getting used to a much greater level of scrutiny and openness than many will have been used to. Goldsmith says it also means having monthly board meetings that will eat considerably into the workload of the company. It is, he says, an option suitable only for the larger firms.

One of the rules of the exchange is that there must be no res-trictions on the free transferability of shares. A stockmarket listing could, therefore, raise the incestuous prospect of a client going to an IFA and purchasing a product from a provider who owns shares in the same IFA and who is providing a product that itself invests in the IFA.

Goldsmith accepts that some of the institutional inv-estors in his company are from related sectors. But this means they have a better understanding of the business rather than any wish to intervene, he says.

Goldsmith also accepts that flotation could allow de facto multi-ties through the back door but says public listing is anything you choose to make it.

The amount of equity the company relinquishes in the first place obviously determines how much control can be exercised. However, he says, it can also allow you raise capital, give your company a public profile and raise it to another level.

john stones


Old Mutual Asset Managers – Old Mutual Global Equity Market Neutral Fund

Monday, 15 October 2001.Type: Hedge fund.Aim: Growth by investing in global blue chip companies.Minimum investment: $100,000.Place of registration: Cayman Islands.Investment split: 100 per cent global blue chip companies.Isa link: No.Charges: Annual 1 per cent.Commission: None.Tel: 020 7332 7500.

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