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Laura Edgecumbe

The advantages of flotation can be huge to a financial adviser. The raising of capital is obviously a key aim and an essential one for a fast-growing company. However, there are other significant benefits conferred by flotation on a stockmarket although these must be tempered by the fact that flotation may not be suitable for all IFAs.

Flotation can give a heightened public profile that can benefit the brand building of a company. Some of this derives from the kudos of being quoted on the London Stock Exchange. More significantly, however, is the access to the key investors, analysts and financial institutions through regulatory news service announcements and a presence on trading screens. This heightened profile also influences the views of providers and potential recruits, encouraging the notion of brand potency among target publics. Furthermore, reporting in the business or shares sections of national and personal finance publications raises awareness with key consumer markets and encourages new investors.

There are also strategic corporate advantages to be gained from flotation. Shares can be used in lieu of cash for merger and acquisition activity, and this is immensely valuable currency in the highly fragmented financial services industry. It increases the strategic options open to a fast growing company.

However, there are considerations that need to be factored into the decision to float. There is a significant admin and governance onus placed on a listed company. The London Stock Exchange operates numerous obligations on effective governance and information sharing, which must be adhered to. Furthermore, regulations look set to become more stringent as the Stock Exchange improves the clarity and transparency of reporting to investors

There is also the necessity of a change in corporate mindset that comes with flotation, a transition which is essential for survival as a listed stock. Companies are answerable and accountable to shareholders, and institutions will continually scrutinise management decisions. The business will be subject to speculation by the marketplace and financial media, and must put resource to creating a dialogue with these parties. Companies unable to convince the marketplace of the quality of their management and business proposition will be adversely affected as a highly visible floated business.

Companies are also subject to the whims and fads of the marketplace and even if a company&#39s performance is strong, it can suffer from atypical market conditions, which can adversely affect share price. Recent economic uncertainty and stock market volatility bear this out. This can obviously have a temporary effect of depressing morale in those holding share options, although the cyclical nature of markets means that most will profit greatly from their options.

There are also significant costs associated with floating a company on the stockmarket. These include appointing professional advisers and consultants, implementing systems to comply with stockmarket regulations and a fee for joining the London Stock Exchange (This is £5000 flat for Aim but could go up as high as £200,000 for a full listing depending on market capitalisation). There are also stringent regulations on communicating to shareholders and the responsibility of ensuring that price-sensitive information is handled correctly.

However, these costs may be worthwhile if the business is fast growing and the benefits are sufficiently great that advisers who float are likely to pull ahead of the rest of the pack. The bearish market conditions make it unlikely that many IFAs will consider flotation at the moment. In the long term, however, it could well be that those who do not float, sink.

Laura Edgecumbe is a legal consultant with Kysen


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