RCG Holding’s rapid growth in Asia led the company to consider dual-listing on AIM to attract Western investors.

With the public markets in turmoil, a dual listing can give a company some additional firepower. 

The demand for RCG Holding’s security and identity verification products shows no sign of easing up. Across South East Asia the company is seeing double-digit growth, while the market is China is set to expand by 30 to 40 per cent.
KC Chong, the CFO, says the figures are encouraging given the ‘general market conditions’, notably in Europe, which is the one area where growth is hard to come by. ‘In the UK we have a distributor but the cost of production and the expense paid for human resources is too high,’ he says.

During the early days of the company in 2004, it made perfect sense to go from Hong Kong to the booming Alternative Investment Market in London to try and raise capital. ‘We looked at Nasdaq but the compliance requirements were too strict. Our chairman was a British citizen and he discussed with colleagues the possibility of an AIM IPO. After floating we raised £1 million and a lot of that money went to advisors.’

Go East

As time went by it became apparent that the Hong Kong Stock Exchange (HKSE) would better meet the needs of the business. ‘Although we’re Asia-based, we do not have a lot of investors from this region in our portfolio, so we listed on the HKSE last year. AIM has not been performing well and it’s not easy to raise money in London at the moment.’

The search for additional investors to maintain momentum in a company’s growth story has led to a number of businesses listing on two or more exchanges. Norkom Technologies, which creates preventative financial crime solutions primarily for the financial services industry, listed on the Irish Stock Exchange (ISE) and AIM in 2006. Liam Davis, the FD, says that given the international scope of the business, which operates across Europe, the Middle East and North America, it made sense to create a broader spread of investors.

‘While there are overlaps between the AIM and Dublin markets, in the latter you do have more European investors,’ says Davis, who adds that another plus point is that the exposure to foreign exchange fluctuations is reduced by trades occurring in both the euro and sterling currencies.

Graham Ferguson, the CFO of First Derivatives, which provides software and consulting services to the capital markets, makes a similar point. Listing on AIM in 2002 in order to make acquisitions – five so far – and to lock in key employees, the company decided to float on the ISE two years ago. ‘We’re based on the border with the Irish Republic and if we are going to raise money our profile is bigger in Ireland than it is in the UK,’ says Ferguson.

Not that there has been any pressure to go to the market as First Derivatives keeps posting record results with pre-tax profits for the year ending February 2010 up 27 per cent to £5.6 million and revenue soaring 45 per cent to £25.4 million.

Investor oasis

For companies that are at an earlier stage of development, a dual listing can be equally vital. Accsys Technologies, which converts softwoods and non-durable hardwoods into an environmentally compatible new type of wood, completed a e16.9 million (£14.4 million) funding on the NYSE Euronext exchange earlier this year.

‘It’s a meaningful sum raised at a meaningful time,’ says CEO Paul Clegg. ‘We’ve had to control cash flow and reduce headcount but it was important to raise these funds to execute our plans for the business.’

The company joined AIM five years ago but has had a rocky time and the decision to join Euronext in 2007 was made largely because the company’s main plant was based in Holland.

Clegg, who came on board in August 2009 when the company was ‘burning too much cash’, says that Euronext has served the business well as investors are spread across Germany, Netherlands, Belgium, Switzerland and beyond.
‘We have a broader set of shareholders than we would otherwise have had,’ he says, noting that the breadth of investors also creates additional stability and stronger prospects for future growth. ‘In the longer run as we start to perform, we’ll have a broader range of investment banks writing research on us, which is essential for a global business.’

The obvious disadvantage of a dual listing is the additional administration and red tape, but none of the directors speaking to M&A describe this as being particularly onerous.

In fact, such compliance can pay off when a company is canvassing for investment from overseas. As First Derivatives’ Ferguson puts it: ‘When you go to the US the governance associated with being listed ticks a lot of boxes in terms of risk management.’