PLUS bills itself as the stock exchange for growth companies seeking to enhance their profile and raise funds.
The PLUS-quoted market is billed as a platform for ambitious, growing companies. Since it was founded in 1995 as Ofex, the market has been doing some growing itself.
It is now home to 163 companies valued at a combined £2.3 billion: both figures are down from an earlier peak, but according to Paul Haddock, head of capital markets at PLUS, there is a ‘pipeline of good businesses waiting to come through’.
Haddock concedes that PLUS was affected by a broader malaise in the capital markets. ‘It’s fair to say we almost came to a grinding halt in 2009,’ he notes, adding that the hiatus was relieved by a ‘flurry of activity’ in February and March 2010. Since the beginning of the year, there have been 20 applications to join the market, 16 of which were accepted by PLUS, which itself exercises a veto on companies seeking a quote.
Meanwhile, there have been over 70 fundraisings on PLUS this year, which Haddock believes is encouraging given conditions in the wider economy. ‘Considering a majority of our companies are SMEs, which are finding it very difficult these days to access bank financing, access to funding in other areas is very important to them,’ he observes.
Show me the money
Of late, it hasn’t been enough to have a good proposition in order to raise funds; timing has been crucial too. Zeta Compliance, which provides products and services to ensure organisations meet environmental, health and safety regulations, joined PLUS in May 2008.
‘We looked to get onto the market, state our intent, build a track record on the market and then begin our acquisition search,’ says group chairman John Caines. ‘As it happened, when we found our first acquisition and had an agreement ready to be signed, we soon discovered that equity markets had shut down.’
But more recently, things have been looking up. ‘In November 2009, we raised £400,000 to finance the acquisition of The Fire Strategy Company, which we completed in May this year,’ says Caines.
Peter Simmonds, chief executive of digital marketing agency dotDigital Group, says of its decision to float on PLUS, ‘Our feeling at the time was that we were too small to go to AIM. We were introduced to a cash shell that had already been floated on PLUS. It gave us a ready-made vehicle to make the transition on to public markets easier.’
Simmonds adds that the shell’s cash resources of £700,000 also came in handy as dotDigital pursued its growth strategy.
Most companies that have come to PLUS this year have not raised new funds, which Haddock says is due to broader economic woes. ‘The funds are not there to filter down to smaller markets, which is a shame because if anything would help to drag us out of the [downturn], it’s smaller companies.’
Even if funds are not immediately available, some companies see a PLUS quote as a way to raise their profile or boost their credibility. The hope is that this will help win business or attract investment further down the line.
For Caines, this was one of the attractions of gaining admission to the market. ‘We saw that we could build a significant independent business and that PLUS would raise our profile,’ he notes, adding that being able to use shares to fund acquisitions is another major benefit.
Wilf Boardman, managing director of safety switch manufacturer Mechan Controls, says the company listed on PLUS in 2003, when it was still Ofex. Though it raised no new money at the time, the aim was to bring the business to a wider audience and in due course, raise funds for bolt-on acquisitions.
‘We just didn’t need the money, and we still don’t,’ Boardman explains. ‘Sometime in the future, it is our intention to use the shares as currency but it hasn’t been necessary yet because obviously you only do that when you have to and when it’s a better deal than the banks. At the moment, that isn’t the case.’
Meanwhile, Simmonds of dotDigital regards the opportunity to list on a market such as PLUS as a rite of passage. ‘I think with a lot of young, growing businesses there comes a point when you feel you have matured, you are no longer a start-up, and you’re ready to take on the discipline of corporate governance and life in the corporate spotlight,’ he says.
Haddock is only too aware of the difficulties being experienced by growing companies at the moment. However, he believes PLUS has a role to play in the future success of SMEs, one complementary to that of AIM.
‘We try to pitch our offering to companies that tend to be smaller than the ones you might see going to AIM,’ he says. ‘Very often companies may be looking to raise smaller amounts of money. If you are raising £150 million, as some AIM companies used to, that is not what I would categorise as a proper growth company. So we are there for those genuine growth companies AIM has almost left behind as it’s grown.’
Boardman acknowledges that AIM was not much of an option for Mechan Controls. ‘The cost of going on AIM is so prohibitive. Unless you are making £500 million profit, there is no point,’ he states, with a touch of exaggeration.
Jo Turner, assistant director at Cairn Financial Advisers, says you should expect to spend at least £100,000 on advisers’ fees and other expenses when you bring your company to PLUS, while maintaining your quote will cost you in the region of £15,000 a year. While these are significant expenses, they are less than half of what you would expect to pay on AIM.
Delivering the goods
Caines believes the exchange has delivered for Zeta Compliance Group and will continue to do so, although he acknowledges that it remains challenging to raise money.
He adds that the level of accountability that comes with a public listing has forced the group to ‘sharpen our thinking’.
‘The need to explain ourselves to third parties, if not always entirely comfortable, makes us stop and think,’ says Caines.
Simmonds thinks accountability reassures clients. ‘Being a plc with accounts in the public domain and knowing that we’re monitored at a higher level of scrutiny gives our customers more comfort,’ he explains.
Haddock accepts that there may come a time when companies have outgrown PLUS, in which case he believes it makes sense to switch to a standard listing on the Main Market, or consider AIM, although he believes the former option ‘makes much more sense’ for many companies.
At the moment, he is adamant that PLUS has much to offer both growing companies and investors. ‘We see ourselves as complementary to other options that are available,’ says Haddock.