Once a company decides to go public, the next decision is where. It is easy to treat that as a detail for the advisers. It is not. The listing venue decides which investors can buy the shares, how much the listing costs, what the company must disclose every year, and how easily it can raise more capital later.
There is no single best market. There is a best market for a particular company at a particular stage. This is how to think about the choice.
Main markets
Main markets are the senior boards of the major exchanges. They generally have the strictest entry requirements: a longer audited track record, a minimum size, a minimum proportion of shares in public hands, and a full prospectus approved by the regulator.
In return they offer access to the broadest pool of institutional investors, including funds that can only hold shares on a main market, and they can bring index inclusion, deeper liquidity and a stronger profile. They suit larger, established businesses with a clear track record and the finance function to support heavier ongoing obligations.
Growth markets
Most major exchanges run a growth or junior market designed for smaller and younger companies. Entry requirements are lighter, the admission process is often faster, and regulation typically relies more on a nominated adviser or sponsor who supervises the company on the exchange’s behalf.
Growth markets can suit companies that are still scaling, that do not yet meet main market thresholds, or that want to list and raise capital earlier. The trade-offs are usually a narrower investor base, lower liquidity in the shares and, in some markets, a valuation discount compared with main market peers. Many companies start on a growth market and move up later.
Listing at home or abroad
Companies increasingly look beyond their home exchange. The reasons are usually one of three:
- Investor specialism. Some exchanges have deep pools of investors in particular sectors, such as mining and resources, technology, or life sciences, who understand the business and value it accordingly.
- Valuation. Comparable companies may trade at higher multiples on another exchange.
- Capital depth. A larger market may support bigger raises, now and in future rounds.
The costs are real. An overseas listing can mean a different accounting standard, local legal advisers, time-zone and language issues, and investor relations in a market where the company is unknown. It works best when the company already has customers, operations or a natural investor base in that market.
Dual and secondary listings
Some companies list on two exchanges, either at the same time or by adding a second listing later. It can widen the investor base and improve liquidity. It also doubles parts of the compliance burden, so it tends to suit companies with genuine investor demand in both markets rather than as a first step.
The questions that decide the venue
- Who are the natural investors? Where are the funds and individuals who understand this business, and where can they buy?
- Do we meet the entry criteria? Track record, size, free float and accounting standards differ by market. We cover the preparation in IPO readiness.
- What will it cost to get there and to stay there? Admission costs, annual fees, adviser retainers and the internal cost of reporting.
- How much do we want to raise, now and later? A market that suits a first raise may not support the next one.
- Where are the comparable companies listed? Investors and analysts value businesses against peers they already follow.
- What are the ongoing obligations? Reporting frequency, disclosure rules and governance codes vary, and some are much heavier than others.
Listing and debt
For companies carrying significant borrowing, the venue also affects how the market will view the use of proceeds. Investors on some markets are comfortable funding a balance sheet repair when the equity story is strong; others are not. We look at that route in taking a company public to clear debt.
The short version
Choose the market that fits the company’s size, sector and investors, not the one with the most famous name. The right venue makes the listing easier, the shares more liquid and the next raise simpler. The wrong one can leave a well-run company thinly traded and overlooked. If you are still deciding whether a listing is the right route at all, start with choose the instrument before you choose the investors.
Mark Johnson is a Director of BDM Wealth Management, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.
BDM Wealth Management is an introduction business and is not regulated. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Capital is at risk and you may get back less than you invest. Tax treatment depends on individual circumstances and may change. For high-net-worth and sophisticated investors only. Take independent professional advice before making any investment decision.