For SMEs looking to grow, listing on a public market can boost its global profile, increase its access to capital and liquidity. However, stock market exchanges can be expensive and complex. Here we analyse NEX Exchange and what it can offer fast growing businesses.

Question: What do Arsenal Football Club, Barclays Bank and Newbury Racecourse all have in common?

Answer: They all have shares listed on the NEX Exchange Growth Stock Market

To those outside the square mile, few would make the connection between these companies. Although these high profile names are generally unrepresentative of the overall constituents of the NEX Growth Stock Market, which is designed for SMEs.

Some stock market commentators refer to NEX as AIM’s younger brother, and in terms of number of companies and international profile NEX still lags some way behind AIM. Nevertheless, for SMEs looking to dip their toes in a public market for the first time, NEX may offer a low cost and simple route to achieving public market status. In March 2018, the company was bought by American futures exchange CME Group.

What is NEX?

Unlike AIM which is part of The London Stock Exchange, NEX is an independent UK stock exchange regulated by the Financial Services Authority and by ICAP plc. NEX is in fact two separate stock markets.

• The NEX Growth Market is designed for smaller and growing companies
• The NEX Main Board designed for larger companies and is regulated.

The NEX Growth Market is focussed on smaller businesses and sees itself as a direct competitor to AIM.

Why join NEX?

Funding – Joining NEX means you’ve got more of a chance of raising equity-based finance if you are a young company. Around 80 per cent of funds raised by companies on the market to date have been for “secondary” issues – funding growth rather than initial set up.

>See also: London IPO Market soars in 2017

Valuation – Admission to NEX provides an independent valuation for your business acquisition currency – Companies on NEX may be able to use their shares as a currency for acquisitions.

Trading of your company’s shares – Your company’s shareholders, whether family members, the founders or equity providers, are better able to realise the value of their investment through a regulated market in the company’s shares.

Employee motivation and retention – Companies joining NEX can establish transparent employee share schemes which can have a beneficial impact on the recruitment, retention and motivation of your staff.

Suitability for NEX

The NEX Growth Market is generally regarded as most suitable for companies looking to raise below £5 million. There are no formal restrictions on the type of business, industry sector or size of companies that can join.

Costs and Timing

One of the most attractive features of NEX is that the costs of joining are significantly less than for other junior stock markets such as AIM. The cost of joining NEX may be taken out of the funds that are raised by a company on the market at the time of admission.

The typical admission process to NEX takes around two to three months.

Taxation

There are various tax planning issues and reliefs which may be available for the individual investor in NEX traded shares.

How do you know if NEX is right for your business?

It’s advisable to speak with a stock market consultant first who will assess your company’s potential suitability.

It’s also useful to have them undertake a feasibility assessment in order to determine the fundraising capacity of your company on NEX, the likely valuation ranges you may achieve and costs involved for your company For more information see the essential guide to NEX.

Further reading:

All you need to know about cash shells

Read our interview with the NEX Exchange chairman, Patrick Birley, here

Watch the video below