High-Growth Companies Robin Klein of Index Ventures
companies will be unable, or unwilling, to invest in a company that is not listed on a “regulated market”.
This will, however, mean that applicants for a listing on the HGS will be required to produce an approved prospectus. This accounts for the bulk of the time and cost of a listing on the Main Market.
In the build-up to the Budget, there were rumours that the Exchange was arguing for the abolition of stamp duty on AIM-listed shares (which was widely expected to be announced) to be extended to the HGS. That argument was supported by many commentators, including Robin Klein at Index Ventures, as reducing the barriers to European tech companies listing on the HGS.
In the event, the Chancellor announced that stamp duty would be abolished on AIM and “other junior markets” from April 2014. At time of writing it is not clear whether or not the HGS is included within that term, although this will likely be clarified in short order. If stamp duty, which is applied on a per-transaction basis, does not apply to the HGS then this can only be a boost to the liquidity of the market.
Companies will also be subject to certain reduced ongoing compliance requirements, of which the most significant is the handling of significant transactions for the listed company. Under the HGS rules, significant transactions will trigger obligations to notify the market of headline details. A company on the Main Market would be obliged to produce a detailed shareholder circular and obtain shareholder approval for a transaction of the same relative size.
Certain other aspects of day-to-day compliance may also be lighter on the HGS than the Main Market – for example the UK’s Corporate Governance Code will not apply to companies by virtue of an HGS listing. HGS-listed companies that require outside investment, however, will likely go most of the way towards Code compliance. This is already the practice among the larger companies on AIM, with smaller companies voluntarily following the Quoted Companies Alliance’s corporate governance guidelines – a set of rules intended to address the same issues as the Code, but in a manner more appropriate for earlier-stage businesses.
Will investors come to the HGS?
The key aspect of the HGS which is aimed at ensuring that it will attract Main Market capital is that it is a “regulated market” for the purposes of European legislation. This is the same regulatory status as the Main Market, and it means that companies listed on the HGS will be subject to the same standards of, for example, disclosure as those with full listings. This is a crucial step in attracting Main Market capital to the HGS – many investors in Main Market
56 entrepreneurcountry Prospects for the HGS
The HGS has clearly been pitched as a step down from the Main Market, rather than a step up from AIM or a halfway house between the two, by virtue of its “regulated market” status. This is because attracting Main Market-type investors (and, therefore, liquidity and potential investment) to the HGS is the key to its success, and those investors will be more comfortable in that environment.
What remains to be seen is whether the reduced barriers to entry set out in the rulebook will address companies’ key concerns about listing in London. The ability to retain 90% of the company will certainly be attractive to founders and backers, but the costs associated with listing and ongoing compliance will likely be materially the same as for Main Market companies in most areas other than significant transactions.
By pushing to have the HGS open soon, the Exchange may be giving companies the opportunity to complete a listing before the markets slow down for the summer. If there are some early success stories of high-growth tech companies listing and attracting capital, then we might expect the HGS to gain traction quite rapidly.
David Willbe is counsel in the Corporate group of the London office of Crowell & Moring, an international law firm. Follow them on Twitter @CrowellLonCorp
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