A company can raise capital in a number of ways; for example, by
private offers of shares for subscription, by borrowing or by using
retained profits. Another way a company can raise capital is by way
of public offers of shares on a stock exchange. Floating enables a
company to maximise its exposure to prospective investors in
national and international markets.
The Irish Stock Exchange launched the Irish Enterprise Exchange
(the "IEX") on 12 April 2005. The IEX is an exchange
facility designed primarily for small- to medium-sized companies.
The exchange is a vehicle whereby businesses, and particularly
relatively new companies, can raise finance. One could be looking
to raise anything from as little as €2 million to as much
as €100 million from a flotation.
The IEX is classified as a Multilateral Trading
Facility under the Markets in Financial Instruments Directive
(Directive 2004/39/EC) ("MiFID"). By contrast, the main
market (the "Official List") of the Irish Stock Exchange
is classified as a Regulated Market under MiFID. The most
significant difference between a Multilateral Trading Facility and
a Regulated Market is that in the case of a Multilateral Trading
Facility, there are less specific requirements with regard to the
issue of the prospectus, the publication of the interim and annual
figures and the publication of price-sensitive information.
A higher degree of investment risk tends to be attached to small
to medium-sized companies in comparison with larger more
established ones. Despite this, however, securities admitted to the
IEX are subject to the IEX Rules for Companies (the "IEX
Rules") which provide a less onerous regulatory environment
for companies to operate in when compared with the listing rules
for officially listed companies. Having said that, floating and
operating on the IEX still requires strict compliance with the
provisions of MiFID and the Prospectus Directive (Directive
2003/71) (as amended).
When it launched the IEX, the Irish Stock Exchange was
attempting, firstly, to mirror the success of the London Stock
Exchange's Alternative Investments Market ("AIM") as
a trading platform for small and medium companies and, secondly, to
stem the flow of small and medium sized Irish companies to the UK
in search of listing on AIM. The IEX's attempts here have met
with limited success. While some companies may for a variety of
reasons (relating to the nature of the product or service on offer
or the perceived target market for that product or service) make a
conscious decision to remain loyal to, and, indeed, to exploit, the
Irish market through the vehicle of the IEX, the fact remains that
in international markets whose delineations are ever diminishing
and growing more vague, the priority of raising substantial capital
will usually result in an initial flotation on London's AIM or,
perhaps, at least a dual listing on AIM and IEX.
Advantages of the IEX
The IEX offers small to medium-sized companies a number of
Access to investment capital;
Companies who are listed on the IEX are attractive to investors
for many reasons including the opportunity to improve the liquidity
of shares and enable shareholders (particularly existing
institutional investors) to realise part of their investment;
An IEX listing enhances the status, corporate profile and
capital base of the company;
Shares can be used as a form of currency, therefore avoiding
the need to resort to working capital or additional debt
IEX combines the benefits of a public quotation with a more
flexible and less stringent regulatory environment. Companies
trading on the IEX follow the IEX Rules as opposed to the extensive
regulatory regime in place for companies trading on the main market
of the ISE; and
The IEX Rules have been designed specifically for smaller
companies and are complementary to the AIM admission rules in the
UK, thereby allowing Irish companies the option of coordinating
admission to both markets using the same timetable and essentially
the same admission document therefore reducing the time and costs
involved in listing on both exchanges.
Irish companies considering applying to the AIM should consider
a dual listing on the IEX for many reasons including gaining
'home market advantage' and increasing the company's
visibility to institutional and retail investors.
Steps Involved in Floating on the IEX
It can often take up to two years for a company to fully prepare
itself for flotation. However, the flotation process itself
generally starts more than a year before the expected date of
admission to the IEX. A very rough and ready timeline to the key
steps involved in the admission process are as follows.
Step 1: Twelve months and more before admission
Appoint advisers (for example an IEX adviser (see...