London world centre for equity finance

London is the financial centre of the world with a range of capital-raising options open to businesses.

In 2009, London retained its position as the international financial capital by being voted top business city, for the 20th year running, by the respected European Business Monitor survey.

One of the factors in London’s repeated success is the ease of access to equity finance via the city’s capital markets, which are known and respected across the globe.

The London Stock Exchange (LSE), for instance, founded in 1801, is one of the largest stock exchanges in the world, offering a portfolio of world-leading financial services. Its exchange-regulated Professional Securities Market (PSM) enables companies to raise capital through the listing of specialist securities, including debt and depositary receipts, to professional investors. Its Specialist Fund Market (SFM), meanwhile, is a dedicated market for alternative investment funds, targeting institutional, professional and highly knowledgeable investors.

London is also home to the PLUS stock exchange, which, like the LSE, has Recognised Investment Exchange status and includes the full range of stock exchange activities. More than 220 small and mid-cap companies are currently listed on the exchange’s PLUS-quoted market segment. Its PLUS-listed market offers a choice of admission options for companies or funds and provides access to the Official List of the Financial Services Authority’s (FSA) UK Listing Authority.

For both established and growing businesses looking to raise investor capital, therefore, London is an important and desirable location.

Supporting capital raising

In 2009, a record £82.5 billion was raised through new and further issues of equity on the London Stock Exchange – an increase of 16 per cent on the total for 2008, itself a record year. Despite difficult market conditions caused by the global economic downturn there were a total of 69 new issues on the LSE in 2009.

Tracey Pierce, Head of Equity Primary Markets at London Stock Exchange Group, said: “Our markets continued to support the capital raising needs of companies across the year, with a flow of secondary issues contributing to a record year of equity fundraising, providing firms with the backing they need to help them through testing market conditions.”

The LSE’s Main Market is home to some of the world’s most established companies, including the Hong Kong-based Pacific Alliance Group, Japan’s Sony Corporation and Korean-headquartered Samsung. A listing on the Main Market, says the LSE, “enables companies to access Europe's deepest pool of capital and gain the key benefits of higher profile and liquidity.”

The LSE’s Alternative Investments Market (AIM) is an international market for smaller growing companies. Overseas companies listed include Bangladesh-based Beximco Pharma, Cyprus-based plastic product manufacturer Helesi, and Swiss-based medical devices company Toumaz Holdings. Yet the AIM also lists internationally famous names, such as London-based Premier League football club Tottenham Hotspur, which was the first football club to float shares on the LSE in 1983.

Notable developments

Marcus Stuttard, Head of AIM at LSE, says: “The fact that AIM companies succeeded in raising over £4.5 billion through further issues in 2009 – capital injections which they have used to pay off debt, rebuild balance sheets and fund further growth – demonstrates how interest in small and mid-cap companies among London’s unrivalled suite of small-cap investors remains strong.”

Recent equity market highlights on the LSE include the admission of Tata Steel, one of the world’s leading steel companies, to the LSE’s Professional Securities Market. On admission, Tata Steel raised $500 million (approximately £325 million) through Global Depository Receipts (GDR) – certificates issued by banks representing one ordinary share in the company, which can be listed and traded on the Exchange. This is the largest ever Indian GDR offering in London.

Another notable development was mineral exploration and mining company Centamin Egypt moving from AIM to the Main Market in November, having grown from a market capitalisation of £21.5 million on admission to AIM (in 2001) to over £1 billion.

Same city – different markets

There was also significant activity on the PLUS markets in 2009. For instance, software and computer services business Arrowpoint Technologies became the first Indian-based company to join PLUS, with a market capitalisation on admission of £27 million.

In fact, 30 companies applied to join PLUS in 2009, and 18 of these had been admitted by the end of December. These included HealthyDays Group plc, which markets products to assist people with mobility difficulties; and Wessex Exploration plc, a hydrocarbon exploration company with interests across Africa and within the UK.

Paul Haddock, Head of PLUS Capital Markets, said: “2009 was an exceptionally difficult year, but we saw continued momentum and good levels of activity on the PLUS stock exchange’s primary markets.

“We’re optimistic for the coming year as PLUS continues to broaden and develop its primary market offering and increasingly work alongside issuers and advisers to facilitate the admission of new companies, as well as non-standard instruments.”

Many routes to raise finance

Companies raise capital through an Initial Public Offering (IPO) – otherwise known as a ‘flotation’ – by issuing stock or shares to the public for the first time. On the LSE, the largest AIM IPO of 2009 was Jersey incorporated real estate investment company Max Property Group, which floated in May, raising £220 million.

Away from listing on London’s stock exchanges, finance can come from Business Angels: high net worth individuals who either operate alone (typically investing between £10,000 and £250,000 per deal) or in groups (known as “syndicates” or “networks”).

Businesses can also look to venture capital firms (who typically make investments of up to £5 million to companies with high-growth potential) or raising funds through private equity.

Private equity is medium to long-term finance (typically above £5 million) which is given in return for a stake in a company which is not listed on the stock exchange. The investors’ returns, therefore, depend on the growth and profitability of the business which has received their funds. The BVCA - the industry body and public policy advocate for private equity and venture capital in the UK - notes that there are over 250 active UK private equity firms, which provide several billions of pounds each year to unquoted companies.

Success stories

Tom Allchorne from BVCA notes: “Venture Capital firms look for companies that operate in a sector set for major and rapid growth, have a unique product with a sound business plan and a highly-committed and experienced management team. The last is particularly important, as VCs are backing the people running the business as much as they are the business itself.”

Venture capital success stories include Playfish, a London-based social network gaming business founded in 2007 by four former employees of Glu Mobile, a US mobile gaming company. Backed by US$21 million (£13.6 million) of venture capital money from Accel Partners and Index Ventures, Playfish was sold to US gaming giant EA in 2009 for US$300 million (£194 million). It currently has over 60 million monthly active players, driving more than 1 billion game play sessions every month.

Then there is CSR (formerly Cambridge Silicon Radio) founded in 1998, a leading developer of Bluetooth and WiFi technologies.

Initially backed by 3i, Amadeus Capital Partners and Gilde Investment Management, CSR increased sales from zero to US$487 million (£315 million) by the time the company was floated on the London Stock Exchange in 2004.

Whatever the size of the company – and whichever financing route it chooses – London’s well-established financial infrastructure makes it a vital location for the raising of investment capital.