In late 2005, Aqua Bounty, the US specialist marine biotech company, raised $20 million through a successful initial public offering on the London Stock Exchange’s AIM market. In this, Aqua Bounty was just one of a total of over 70 US and Canadian companies that have so far opted to raise money on the UK Exchanges, rather than choosing to float in North America. As a London Stock Exchange spokesperson observes, the London markets are proving hugely attractive to North American companies for a variety of reasons. ‘Undoubtedly a desire to move outside of the Sarbanes Oxley corporate governance provisions is part of the mix. But just as important, or perhaps more so, is the fact that companies with a market capitalisation of well under $500 million can attract institutional investment in London, while they cannot get this in their home markets.’ Below $1 billion, US companies tend to have to rely on retail investors and addressing those investors takes a substantial marketing budget.
Of course, North American companies targeting a UK listing need to draw on expert advice here to help them through the complexities of meeting the requirements of a sponsoring broker. ‘Another really important factor for a company like Aqua Bounty,’ comments Ernst & Young partner Anthony Vickery, ‘is that in the UK it is possible to get analyst coverage following an IPO, particularly in a potentially fast growth, emerging area like marine biotechnology.’
As Aqua Bounty’s co-founder and CEO Elliot Entis points out, the aqua industry is something of a stealth industry. Very few outside the sector are aware of its size. If they are aware of it at all, it is largely as a result of bad press.
This was an important reason why, when it decided to go public, Aqua Bounty needed to float on a market where the company would receive some serious attention from the analysts. Without that attention, the concerns of environmentalists coupled with the need for prospective investors to understand the details of the bio-technology involved might well present insuperable barriers to getting the flotation off the ground.
Entis says: ‘The primary driver for the float was to raise money to secure a solid financial foundation for the company with which to commercialise its products and to give some liquidity to existing investors. But, at the same time, we wanted to open the door for more widespread knowledge in the market about the company which will assist us further down the track.’
As one of the very few biotech companies working in the field of aqua culture, Aqua Bounty now has a reputation in the field.
p>‘The point to note is that as with many biotechs, nothing about the development of Aqua Bounty has been quick. Everything has been about the medium to long term,’ he says. ‘It took us 15 years from the inception of the company to the point where we could have a minor public offering. Anyone in biotech understands that the road from start up to having a marketable product is a long and hard one. As an entrepreneur, you need to have patience and you need to stick with it.’
Entis is a real evangelist for marine biotech. He takes every opportunity to explain why what his company does is important. He is passionate about the benefits that his company can bring to fish farmers and to the public – and for him, this passion is what makes it all worth while and it is what gets him out of bed in the morning.
‘I look at our task as analysing the needs of an industry, and this is mainly about disease prevention and mitigation. With our approach the fish farmers or shrimp farmers are not fouling their own nest with antibiotics. The world is increasingly turning to fish as a source of protein and it is a simple fact that the ocean cannot produce more fish to meet this need. By reducing the growing cycle we help to solve this and to make fish more affordable,’ he says.
Entis takes huge satisfaction from the fact that Aqua Bounty has come up with a way of making its fast growing salmon sterile. That way there is no danger of them escaping into the wild and mating with “normal” salmon. Again that reduces the environmental footprint and takes care of one of the biggest fears of environmentalists. But paradoxically, the development has led to criticism that Aqua Bounty helps produce genetically modified fish. In fact, it doesn’t – but time and care are needed to understand the reasons why the criticism is not valid, and in the meantime potential investors can easily be lost.
Entis comments: ‘In the US our experience has been that if you are our size it is very difficult to attract substantial institutional funds from the main markets. We are too big for venture capital and a little too small for the NASDAQ or the NYSE. So if we wanted to stay in the US to raise money, we would have to go to some of the much less well-considered OTC exchanges here.
‘At our size, AIM represented a very nice opportunity indeed,’ Entis continues. ‘As an exchange it is innovative, it is prepared to look at companies our size, namely around $100 million and up, it takes companies of this size seriously. It is also willing to look at new areas of technology and consider them seriously.’
In addition, as Anthony Vickery points out, there is the compounding factor of corporate governance restrictions following the Sarbanes-Oxley Act in the US. ‘That was definitely a factor,’ Entis confirms. ‘Keeping the operating cost down for a company is important for our size; “Sarbox” adds a huge layer of bureaucracy, and the flight of capital from the US is now a reality as a result.’
Entis was also favourably impressed with the level of professional support and expertise available in the UK for an IPO. ‘We were extremely lucky to have been matched up with Code Securities (since purchased by Nomura) as our NOMAD (nominated advisor) specialising in new flotations for biotech companies. They put significant resources into ensuring that this would be as successful and smooth an IPO as possible.’
On 20 March 2006, the first day of trading, Aqua Bounty raised £20 million, ‘and our share price has held its own ever since,’ comments Entis. ‘It is much too early to know about the kind of analyst attention we are going to receive, but we are hopeful that it will be sustained. We are delighted with the positive response we have received from a base of highly regarded international investors. With the funds raised from the placing we will have sufficient resources to develop our marketing capabilities for existing products, accelerate the development of our products in the pipeline and achieve marketing approvals from the major regulatory agencies worldwide.’
This article was originally published in Masterclass magazine.