When mid-market professionals and entrepreneurs contemplate doing a deal with a PLUS company , or indeed floating a business on the tertiary market, the immediate response from the experts is often negative. “The businesses are too small” is a common refrain. “There is no liquidity” is another.
However, all the above criticisms could apply to AIM or to ventures on the SmallCap and Fledgling indices of the LSE’s Official List. And just like AIM, it is possible to get fundraisings and deals off the ground quickly and easily – and make money in the process.
A typical example of success is China CDM Exchange, a PLUS-quoted venture that acts as a broker between Chinese companies generating carbon credits and the Western firms that wish to buy them. The company floated last July at 24p and now trades above 100p.
Moreover, many successful PLUS companies use the market to engineer deals and progress their corporate plans. A year ago, unassuming cash shell Azurite Investments floated on PLUS with the intention of acquiring retail assets. It soon found itself some bargain-basement shops owned by Littlewoods and ascended to AIM in a £2.3 million float at 0.75p, quickly rocketing to 7p under the name of Hitchens Group.
After four years on PLUS, franchising star Myhome International, led by deal-hungry Aussie entrepreneur Russell O’Connell, moved to AIM and has since rewarded its backers with fast-growing profits.
It is risky – that’s obvious
One admirer of Myhome is entrepreneurial stockbroker and PLUS aficionado Mark Watson-Mitchell, whose investment company-cum-corporate finance business Addworth has “made a nice profit of between £300,000 to £400,000” on its Myhome investment.
He views PLUS as “an extremely useful place for the financing and development of early-stage companies” and thinks there will be “300 companies quoted there by the end of the year”.
Watson-Mitchell admits the ability to buy and sell shares is a problem, but he argues “when more liquid markets, such as the Full List have been impacted by recent economic turmoil, there is less impact here”.
It can be confusing
Elsewhere, Hong Kong businessman Johnny Hon, who chairs PLUS-quoted Global Education and Global Entertainment, thinks some recent developments at PLUS have blurred the picture for potential investors. “PLUS needs to do a lot more work to make the exchange function properly,” he argues. “There’s too much confusion and it needs to be simplified.
He refers to the recently introduced names for PLUS’ entire business offering: PLUS-quoted, PLUS-listed and PLUS-traded. The former is the trading exchange that evolved from OFEX to host small, early-stage companies, currently around 220 in number.
PLUS-listed – only recently launched after receiving recognised investment exchange (RIE) status and so far without any listees – acts as a cheaper alternative to the LSE for all companies accepted by the Financial Services Authority onto the Official List. As PLUS business development director Nemone Wynn-Evans explains, “It is an alternative to AIM for price-sensitive issuers that, by dint of the tax laws, have to be on the Official List, such as some investment funds.”
That said, the PLUS-traded mechanism was launched last year following an upgrading of the PLUS share-trading platform, with the new technology enabling a huge leap in the volumes of shares able to be traded. On a randomly selected day, 21 February, four of the top five shares traded by volume on PLUS-traded were FTSE 100 giants Vodafone, Barclays, Royal Bank of Scotland and Lloyds TSB, although Vodafone’s 3.4 million volume was, but a small part of the 180 million shares traded that day.
Impressively, PLUS claims that volumes traded on the exchange grew by 92 per cent in January to 1.7 billion and, says Wynn-Evans, “At one point in January, we had 50 per cent of the UK retail trading market.” Significantly for private and institutional investors, the EU’s Markets in Financial Instruments Directive (MiFID) means stockbrokers are obliged to shop around for the best deals for clients, and the recent surge in volumes reflects the fact that, according to Wynn-Evans, PLUS “often offers better prices”.
A good first step
The final word is perhaps best left to an entrepreneur and PLUS investor, Graham Martin, chief executive of PLUS-quoted Gaming Ventures. He concedes that liquidity can be a problem, but he thinks the new technology on PLUS is changing this. He says “PLUS is a good first step. We are happy to stay on PLUS [although] we are in negotiations about several things that could lead to us moving to AIM, possibly by reverse takeover.”
Related: On the PLUS side – the UK’s junior stock exchange is attracting more growing companies than ever before