On the PLUS side

A change of name and an overhaul of its structure are just some of the reasons why PLUS, the UK’s most junior stock exchange, is attracting more growing companies than ever before...

A change of name and an overhaul of its structure are just some of the reasons why PLUS, the UK’s most junior stock exchange, is attracting more growing companies than ever before…

PLUS is the recently overhauled share trading facility (formerly called OFEX) that seeks to connect young companies with equity finance at an earlier stage than established stock exchanges such as AIM and FTSE. It’s beginning to attract interest from a variety of new sources and is popping up on the radar of many growing businesses as a route to riches now worthy of consideration.

Jean Dong, Chinese businesswoman and presenter on BBC Radio’s World Service, is just one of the latest entrepreneurs to take her company to the PLUS market. Dong’s Global Education Group, set up by Hong Kong psychiatrist-turned-entrepreneur Dr Johnny Hon in order to arrange UK work experience for Chinese students, has listed on PLUS after raising £350,000 privately at 50p a share with the help of St Helen’s Capital. Hon’s China-focused film and media concern Global Entertainment Group also adorns the PLUS list.

Lord Rotherwick of the canny Cayzer business clan has been mooting a £1 million PLUS float for private jet supplier Air Touring. Also in the queue is Mark Smith, contemplating floating Quercus Publishing, producer of Universe and Speeches that Changed the World, after a private fundraising. And youthful financial scribbler Conrad Windham has been drumming up £450,000 for a PLUS debut for Pakistan-focused venture Oracle Coalfields, headed by Shahrukh Khan. He is also preparing Chile uranium play U3O8 Energy for a £500,000 PLUS float.

These are just some of the company chiefs who have decided to tap PLUS in the wake of a recent radical upheaval led by Simon Brickles, former head of the London Stock Exchange’s junior AIM market. Now chief executive of PLUS Markets Group, the company running the show, Brickles has widened the scope of PLUS’s operations and brought in City market makers to tackle its twin perennial problems: an inability to trade shares in large volumes and the wide gulfs between buying and selling prices. This problem of illiquidity has dogged the market for years and is often cited as a possible deterrent by investment professionals, who argue that otherwise PLUS offers a potentially valuable channel for young businesses seeking to lay the foundations for long-term growth.

It all adds up
PLUS currently provides a primary market for some 170 companies, together valued at nearly £2 billion, and has in its history raised a combined total of £1.3 billion, mostly in secondary fundraisings, for the companies that have passed through its doors. Peter Jay of law firm Beachcroft, who advises Quercus and several PLUS- and AIM-quoted companies, says it can cost between £10,000 and £100,000 to list your company on PLUS, depending on whether you are raising money at the same time. He argues that this compares favourably with around £250,000 to £350,000 required to go to AIM.

PLUS offers Enterprise Investment Scheme tax reliefs to companies and investors. Jay suggests PLUS is an ideal market to raise between £250,000 and £1 million, and says it can suit companies to raise money privately and then move to PLUS quickly and cheaply.

PLUS is also likely to host more shell companies, providing quoted vehicles into which budding entrepreneurs can insert their businesses. AIM shells with less than £3 million raised by the start of October have now been de-listed, which could send a few over to PLUS – if the market will accept them.

If you can raise money on PLUS, one advantage is that you could avoid putting yourself in the hands of venture capitalists. Their relatively short-term exit targets, demanding investment return requirements and itch to ‘micro-manage’ can make it hard to develop your business in the optimum way. Under Brickles, PLUS has beefed up its market discipline but it still imposes a less onerous and costly regulatory framework than AIM, which is increasingly becoming more like the full Stock Exchange in regulation and expense.

Companies seeking admission to PLUS must now appoint a ‘corporate adviser’ to supervise the process, but the corporate adviser is not expected to take on the full regulatory duties of the equivalent ‘nominated adviser’ on AIM. The market itself vets – and vetoes – admissions and acts in what it describes as a ‘paternalistic’ fashion, giving guidance to corporate advisers and rapping knuckles, sometimes publicly, in what some claim is a welcome return of the ‘suasion’ of the Stock Exchange regulation of the old days.

Changing its stripes
PLUS began life 11 years ago as OFEX, founded by share dealer John Jenkins, to offer a relatively inexpensive and lightly regulated route to investment funds for young companies not ready for a full Stock Exchange listing. Initially, the market attracted two types of company: young groups wanting to fund early-stage growth before either moving onto a more senior exchange or merging with larger groups, and established groups, such as brewers or football clubs, whose owners were not interested in an active market for their shares but simply wanted a value established for tax, inheritance or other reasons.

Companies that have successfully moved from OFEX/PLUS to AIM include the online betting group Sportingbet, which reached a market value of £767 million before sector troubles took the wind out of its sails, and Chinese lottery operator Betex, another Hon company, which has a more modest £63 million price tag. Among those now pondering a move from PLUS to AIM is Italy-focused energy explorer ATI Oil, whose boss Derek Musgrove says the company originally floated with a £500,000 private funding in late 2004. That was primarily to satisfy a key Swiss investor, whose banks required him to have his investments on an ‘officially recognised’ market, a qualification that OFEX provided.

OFEX started to gain momentum in the late 1990s, at the same time as the dotcom boom was encouraging flocks of plausible entrepreneurs to raise cash for impressive-sounding online ventures. When the bubble burst, share traders deserted the market and it took a long time to re-establish itself.

Matters came to a head in 2004 and 2005 when OFEX Holdings, the company established to administer the market, had to stage an emergency refinancing. PLUS Markets Group became its successor, with City support. Now, steered by Brickles
and chaired by City investment professional Stephen Hazell-Smith, PLUS Markets Group, itself quoted on AIM, is busily putting the market back on the map. The name OFEX formally disappears this month.

PLUS, which has attracted several prominent City market makers such as Close Brothers, KBC Peel Hunt and Teather & Greenwood, operates a quote-driven market for these companies. In addition, PLUS, which has applied for Recognised Investment Exchange status, provides a secondary trading platform for 830 London Stock Exchange-quoted companies, with a combined value of £120 billion. This includes all constituents of the FTSE Small Cap and Fledgling indices, 75 of the FTSE 250 index and 12 AIM counters.

Market motivations
For Jean Dong, bringing Global Education to PLUS was a way to raise the company’s public profile as well as a means to raise funds. Serial small company boss John French is chairman of PLUS-traded condom and allied products supplier Sexual Health Group and chairman of a PLUS advisory panel on secondary market issues. He says the market is ‘a nursery school’ for young companies and ‘a valuable entry market’.

In common with others, he argues, ‘the concept was right but, before the latest changes, it lacked credibility and support from the professionals. Now, the quality of transactions is better, the vetting and rules are much better and the market is getting increased
support from institutional investors.’

Wendy Rosenthal, a high-powered American property manager who raised £300,000 on PLUS last year for leisure, property and retail consultant Hyper Entertainment, is enthusiastic. ‘It’s cheaper and less pressurised by regulation than the London Stock Exchange or AIM,’ she argues, ‘and, because it wins backing from Enterprise Investment Scheme investors who for tax reasons do not want to sell out fast, you are given a chance to grow your business. ‘Our subsidiary, Hyper Exhibitions, is helping stage an exhibition of Carnet jewellery by Michelle Ong in Glasgow starting this month. We could not have done that without a PLUS market rating.’

But Rosenthal has had problems, too, with becoming a public company director. ‘I never realised all the things I had to do, for example at the annual general meeting, or what you can tell shareholders or the Press and when you are considered an “insider”.’

Rosenthal married Hyper’s biggest shareholder last year, after the PLUS float. ‘But we didn’t tell anyone. Suddenly I was told “you need to tell everyone about this”. I don’t think the advisers are always as sensitive or proactive as they might be.’

Rosenthal is particularly concerned about the reputation of PLUS, since it will impact on her plans to raise more funds. ‘I believe being publicly traded gives us credibility and I want to prove that people who criticise PLUS or say it’s just a place for scams are wrong – but I haven’t tested the water yet.’

For Jay at Beachcroft, illiquidity and low institutional participation remain the key challenges for PLUS. ‘It’s harder to raise £2 million on PLUS – requiring 60 to 80 phone calls to do it – than raising £15 million on AIM, where you can usually do it with four hits from calling ten institutions.’

Jay says it’s easier to raise money on PLUS if you have a clear plan to move to AIM. He argues this applies even more if you want to use your company’s shares for a takeover or merger.

Tempting brokers with higher commissions than the customary five per cent could animate the market, suggests Jay. ‘PLUS needs to get small institutions to put in £1 million apiece and then it will fly.’

Learning the hard way
Russell O’Connor admits he floated ex-Unilever cleaning franchisor Myhome International ‘at about the worst time’ in OFEX’s history – after the dotcom bubble burst. He says PLUS provides ‘a good start for an entrepreneur looking to turn their business into a public company’.

He raised only £60,000 in the dire post-bubble days of 2001 and recalls, ‘I learned a lesson: you have to make the market work for you. ‘I realised I could not be uptown promoting my shares and run the business at the same time and so I put my head down. Later on, we went back to the market, put the word out and pulled in lots of shareholders by raising £250,000 through broker Hoodless Brennan.’

Recruiting John Jenkins’ son Jonathan, O’Connor raised Myhome’s game, helped by meeting investment group Noble & Co. A fundraising of £500,000 in 2005 was followed by a £2.2 million placing this June to accompany buying the Ovenclean group. Myhome is moving to AIM by introduction without fundraising in November. ‘Timing has been everything,’ reflects O’Connor, ‘and I’ve learnt a lot.’

ATI Oil joined the tertiary market when the OFEX Holdings crisis was being resolved and, recalls Musgrove, ‘we raised less than we had hoped. We saw it as a stepping-stone to AIM, but I’m not sure it’s been wonderfully helpful.’

He’s frustrated that ‘so few institutions are still prepared to play, so you don’t have an active market’, and, like O’Connor, he accepts that ‘a chief executive has to generate liquidity himself. Simply being on PLUS itself does not get you noticed or put you in a shop window for a bid or merger,’ he warns, though he does think today’s revamped PLUS should generate more of those opportunities – provided it does not attract too many high risk and scandal-prone overseas resource companies.

O’Connor remains a believer. ‘For an entrepreneur thinking about going public, PLUS makes a great start and it’s a myth that compliance is lax,’ he insists. ‘AIM has a lot of traps for new players, but we’ll be ready. I’m now a little wiser about these things, thanks to PLUS.’

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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