AS I SEE IT
Scotland’s first IPO in two years could encourage others to raise funds via a market listing, says JENNIFER MALCOLM
The announcement this week that Calnex Solutions is to float on the AIM market of the London Stock Exchange is excellent news for Scottish businesses thinking of pursuing a similar route to raising capital, and it may prove to be the “unblocker” which encourages other listings to follow.
Linlithgow-based Calnex specialises in test and measurement solutions for the global telecommunications sector and its initial listing should increase its potential to capitalise on the opportunities created by the rollout of 5G networks.
The Calnex deal is also a welcome boost for the Scottish business angel investor community and Scottish Enterprise, who have both supported the company through its different stages of development over the last decade or so.
Last year produced the lowest number of UK IPOs in several years, and while it had been hoped 2020 would be a more settled environment for companies looking to float on AIM, the onset of the Covid-19 pandemic brought the IPO market to a crashing halt.
Leaving aside businesses which have moved to AIM from another stock exchange, until Monday’s announcement by Calnex there have been only two other AIM listings post coronavirus lockdown.
The global issues that existed pre-Covid-19 are still present – trade wars between the US and China, Brexit, the US presidential election – but on the upside, after huge initial falls in global stock exchanges, there has been a rapid bounce back in equity prices.
This has been coupled with a genuinely unprecedented amount of money raised on the London Stock Exchange (over £21.5 billion) by existing listed companies who have been supported by institutional investors both in their restructuring plans to get through the next few months, or in their plans to take advantage of new opportunities which the pandemic has thrown up for their businesses.
With a strong focus on reopening the UK economy and getting people back to work as safely as possible, it may be the time is right for companies to go down the IPO route to support scaling up rather than opting for more traditional ‘exit’ events or fundraising.
So why would companies look to AIM instead of taking up other fundraising options? Although new AIM companies have been few and far between (only 11 new companies joining since June 2019) recent joiners have done well. New entrants, particularly, in tech and pharma, are trading at a premium.
The share price of Uniphar, a pharma marketing and distribution company, has almost doubled since it joined AIM last July and online mental health services provider Kooth underlined there is support for new entrants when it listed earlier this month, raising £26 million through its placing and giving it a market capitalisation on admission of £66.1 million.
‘Market intelligence suggests there is a strong pipeline of potential IPOs across a number of sectors’
Arguably, the timing could not be better for companies considering an AIM listing. There is a build-up of a large swathe of capital that needs to be deployed by fund managers and in a welcome move fund managers are embracing the virtual world as the rest of us are – with fundraising roadshows for new IPOs now capable of being done via MS Teams/Zoom.
Other reasons for considering an IPO include a significant raising of the company’s profile – to all extents signalling that the business has moved up to a new level – it provides an ability to raise cash quickly (as has been seen during the Covid-19 crisis), and with a more solid financial footing and funds earmarked to build the business, an IPO increases the potential to recruit and retain key staff who will be crucial in ensuring ongoing success.
Market intelligence suggests there is a strong pipeline of potential IPOs across a number of sectors – not just the ‘hot’ tech/pharma/healthcare sectors but also more broadly across financial services and real estate.
There are also other businesses which had started the IPO process earlier this year but put it on hold as the wide ranging impact of Covid-19 became apparent, but there is an expectation that those will now be dusted down and refreshed.
It would be foolhardy to predict a sudden rush of IPO flotations in the final quarter of 2020, and it can vary between three to six months to organise a flotation, but it may be that Calnex Solutions’ AIM listing proves to be the catalyst which will encourage other ambitious businesses to follow their lead.
Jennifer Malcolm is legal director and corporate finance specialist at Pinsent Masons