PLUS: an exchange on the rise?

Feb 08 issue

If you’re running a young company and seeking a modest cash injection, PLUS Markets may well be worth a look.
Robert Tyerman reports

Imagine a public market that allows you to raise finance with a minimum of fuss and outlay on regulatory compliance. This is what PLUS Markets has been trying to create during the past 18 months through its PLUS Quoted and PLUS Listed trading platforms.

It’s billed as a more suitable option for fast-growth concerns than the Alternative Investment Market (AIM), through which brokers often seek to bring larger companies to market.

Jonathan Willis-Richards of corporate finance firm Loeb Aron says a suitable company should be able to raise up to £2 million on PLUS without too much trouble. The average amount raised by the 59 companies that listed during 2007, however, is closer to £500,000.

In total, 2007 saw the amount raised on PLUS soar by 115 per cent to £41 million, while a further £15 million came from secondary fundraisings. There are 200 companies on PLUS Quoted with a combined market cap of over £2.3 billion, while 800 companies are now using the exchange as a secondary market (PLUS Listed).

Compared with AIM, which saw 222 new issues in 2007, raising a total of £6.2 billion, this is small beer indeed. Nevertheless, if other forms of financing are not to your liking, such as the more hands-on approach of venture capitalists or the risks of debt finance, the modest liquidity available through PLUS could be the answer to your business’ growing pains.

Instead of AIM’s system of employing a nominated adviser to take responsibility for the accuracy of your claims and statements to market, as well as a broker, lawyer and accountant, PLUS requires each company to hire a corporate adviser and a lawyer.

That makes life cheaper, at least compared to AIM or the Full List.

John Bridges, chief executive of Orange Corporate Finance (part of PLUS-quoted
I-Financial Services), suggests coming to PLUS for £1 million will cost between £160,000 and £180,000, compared with a likely £350,000 to £500,000 to raise the same on AIM. The ongoing professional costs and payment for the market’s news service are significantly cheaper.

Barry Hocken, from broker and financial adviser St Helen’s Capital, says a PLUS float could cost 15 per cent of funds raised, though he argues investors are now more anxious to see some track record of two to three years’ trading. ‘Pure start-ups are out,’ he says.

Wheeling and dealing
A PLUS quote provides shares with a recognised value that a company should be able to use for deals. Giles Weaver, chairman of Buckinghamshire-based primary health care property group AH Medical Properties, came to PLUS early last year with a £3 million placing to back the £7 million shares and cash acquisition of properties from the primary healthcare concern Ashley House. Although the shares have fallen 27 per cent since last year’s flotation, the exercise achieved the company’s goal.

PLUS advisory committee member Tony Brown of finance group Nexus, which has lately listed Greenerhouse Investments, says PLUS has been working well for other Nexus connections, such as City worker-focused General Medical Clinics, headed by Harry Hyman. At 38.5p, the shares have held their value over the past year, pricing the company at £6.4 million. ‘The costs are lower than on AIM and PLUS paper [shares] helps with acquisitions,’ observes Hyman.

Even in these difficult times on the public markets, plenty of companies are planning a PLUS float. Specialist investment banker David Carr is seeking £698,000 at 16p through Lion Capital to float Africa Oil Exploration, citing a perceived improvement in the market’s liquidity as one of its attractions. Birmingham property developer and hotelier Avtar Sandhu has been talking to PLUS adviser Atlantic Law about a possible float for Coventry Stadium, a dog track he wants to turn into a 25-acre residential project. And Loeb Aron is thought to be lining up Abby Hardoon, whose Host Europe was sold to Pipex Communications for £33 million four years ago, for a comeback via PLUS next year.

Some entrepreneurs have done spectacularly well on PLUS, while others have been distinctly less fortunate. Shares in Jeff Chatfield’s Singapore-based Avation, a diversified aircraft leasing specialist, have soared from 4p to 70.5p, while the company raised £11.5 million and spun-off its Capital Lease Aviation arm onto AIM. It is now valued at £73 million, against Avation’s own £17 million PLUS tag.

Other recent winners include Asian ‘green’ brokerage outfit China CDM, which raised £5 million and has seen its shares more than quadruple since the end of 2006 to 105p, valuing the company at £110.25 million.

Big plans

PLUS began life 12 years ago as Ofex, launched by share dealer John Jenkins as a platform for young companies seeking relatively modest sums. The market is today part of an ambitious array of share trading platforms that boast the status of a recognised investment exchange (RIE).

The tag accords the tertiary market the same status, rights and privileges as the London Stock Exchange (LSE). It is operated by PLUS Markets Group, an AIM-quoted vehicle headed by the formidable Simon Brickles, an ex-barrister who used to run the LSE’s junior market.

There are currently seven market-makers, and PLUS is open to UK and overseas companies and funds. Its primary market specialises in smaller domestic and international companies representing a wide range of sectors.

Its secondary trading platform is based on a quote-driven trading model, which PLUS believes is the most efficient and effective system by which shares in small- and mid-cap companies may be bought and sold. Market-makers commit their own capital, playing a key role in providing both price formation and liquidity.

PLUS boasts a clear and straightforward admissions process, which can usually be completed in three months or even less. A prospectus is necessary only if raising more than e2.5 million (£1.8 million). This can mean that it can be utilised as an alternative to pre-IPO fundraising that may otherwise be more difficult and costly.

PLUS Markets recently came close to linking up with Project Turquoise, a share trading system constructed between major banks, though the talks proved inconclusive. Despite all this big-time activity and the changes made by Brickles and his team, PLUS Quoted is still not taken as seriously as they want it to be.

Even investment group Close Brothers, a big PLUS Markets shareholder, owner of PLUS market-maker Winterflood and keen supporter of Brickles, says it is not bringing much business to PLUS Quoted these days. It was the old Ofex’s misfortune to come into its own during the late 1990s dotcom bubble and the resulting burnt fingers still trigger painful memories.

The price is right

Securing a fair valuation in the market after you have floated remains a concern – as it does on AIM. In addition, worries exist about liquidity. Although Nemone Wynn-Evans, business development director at PLUS Markets, vehemently denies this is a problem, some shares do not trade for days, weeks or even months.

Simon Riddell, former marketing director of Procter & Gamble’s Babycare division and now chief executive of £6 million AIM float Animalcare, tells a cautionary tale from the Ofex days. The company came to market five years ago as agricultural products outfit Ritchey at 150p, with backing from shareholders of stockbroker Rensburg. ‘The plan was to get liquidity and exit,’ he recalls.

Half the shares were held by the directors and a further 35 per cent by two other shareholders, the head of a company Ritchey had bought with paper and a member of the founding family.

Riddell and chairman James Lambert tried to trade the shares, but they were fighting a losing battle once market-maker Winterflood had lost interest. The share price slowly halved to 75p before a rescue plan was launched, involving a name change, an AIM float and the £14 million purchase of Genus Animal Health, funded by the share float and £8 million from the bank.

Riddell does not necessarily blame PLUS Quoted as he concedes the shareholding structure was wrong at the start. But issues like these are what company chiefs hoping to take advantage of PLUS need to consider before taking the plunge.