Category Archives: Business

The cost of listing in 1986 versus today, and the role of the Prospectus

 

“London Stock Exchange published our article on the cost of listing in 1986 versus today. You can read it below and also access it here on the LSE webpage

How much did it cost to list and raise money on the London Stock Exchange in 1986, and how does that cost compare to 2021? A possible answer can be found in two very interesting papers published 35 years apart.

The first is a Bank of England paper from December 1986 titled “New issue costs and methods in the UK equity market” [1]. The other is a comprehensive report on the primary and secondary equity markets in the European Union, commissioned by the European Commission and produced by Oxera Consulting LLP in November 2020 [2].

Total Listing Costs

According to the Bank of England the average total cost of a new listing in London via a public offering was about 15.3% of amount raised (Table 1). Figures were calculated on a sample of 57 offers for sale between 1983 and 1986 – most of them under GBP 10m in 1986 money, or GBP 30m adjusted for inflation.

Table 1: Cost of listing as percentage of amount raised in 1986
Source: Bank of England

In 2020 Oxera estimated the financial cost of an IPO in an EU-domiciled venue (including London) to be in the region of 5% to 15% of gross proceeds,“…although this can be higher for those raising smaller sum”.

The Federation of European Stock Exchanges (FESE) estimates the initial costs of listing in Europe to be 10-15% for an IPO of less than EUR 6m; 6−10% for an IPO of less than EUR 50m; 5−8% for an IPO of between EUR 50m and €100m; and 3−7.5% for an IPO of more than EUR 100m [3].

In percentage terms the listing costs are disproportionately higher for small and medium-sized enterprises (SME), making access to capital public markets for those companies more costly and potentially less appealing.

Total IPO costs – 1986 vs 2020 – it’s a draw:

1986 2020
15% Up to 15%

Direct Listing Costs

The pure direct costs of the listing exclude underpricing, and generally consist of fees paid to the underwriters/ bookrunners, accountants, lawyers, advisers, the listing venue, the regulators, but also service charges by PR firms, financial printers, and other providers of professional services.

In 1986, on the same sample of listings the Bank of England calculated the direct costs of a listing in London to be 10.6% on average (Table 1). On a typical offer for sale (listing) of GBP 7m (approx. GBP 21m in 2021 money) presented in the Bank of England paper these expenses amount to GBP 562,340 (GBP 1.7m today) or 8.0% of total amount raised (Table 2).

Table 2: Expenses on a GBP 7m raise in 1986 (approx. GBP 21m today)

Source: Bank of England

Some 35 years later Oxera estimates the same at 8%, based on an assumed gross deal value of €60m (Table 3).

Looking at a more granular level, in their earlier analysis Oxera found the combined cost of legal expenses, accounting and auditing fees, advisory fees, printing, PR, and other accounted for approximately 3−6% of the funds raised for a typical issuer.

In the Bank of England example from 1986 the equivalent cost items come out at 4.7%, within the range of Oxera’s estimates 35 years later.

Total direct IPO costs – 1986 vs 2020 – again, it’s another draw:

1986 2020
8-10.6% 8%

Cost of prospectus and how regulations affect it

Often, we hear that producing the prospectus is a costly, complex, and time-consuming process.

Back in 1986 as well as today the prospectus was the central disclosure document a company needed to prepare in order to list. Then as now, producing a prospectus is considered a costly, complex, and time-consuming process for issuers.

The Bank of England in 1986 comments that“…the preparation of the prospectus involves considerable work and cost in terms of accountancy and legal fees.” Years later Oxera further elaborates that the increased length and complexity of the prospectus documentation is part of what many issuers attribute to the high and growing cost of listing.

Though one will often hear that the size and complexity of a Prospectus is the product of growing regulatory requirements (and that the solution is in reducing the regulations and disclosure requirements for issuers), Oxera’s research offers an additional perspective. According to their conversations with issuers the reason for the increased size and complexity lies in the evolution of market practice (and risk averse legal advisers and senior management) rather than the regulatory requirements alone.

Both the Bank of England and the Oxera also conclude that smaller size of the issuance does not necessarily mean less disclosure, a shorter prospectus, or lower cost. In terms of fees for producing the prospectus, Bank of England concludes that this is depended on the complexity of the issue and not directly related to its size; whilst Oxera finds that prospectus length is not proportionate to market capitalisation.

The European Commission has tried to shorten the prospectus and lower the cost by introducing the EU Growth Prospectus which is intended to allow for “lighter disclosure”. Though the use of the Growth Prospectus is still not widespread, Oxera found the feedback from market participants to indicate that the introduction of the SME Growth Prospectus has not resulted in a substantial decrease in the length of the prospectus.

The Oxera paper goes on to explain that although the number of document sections that form part of the EU Growth Prospectus has been reduced by new regulation compared to a normal prospectus, the number of elements included in each section of the prospectus has increased.

Conclusion

Looking at the figures and the persistence of issuer challenges in both the 1986 and 2020 reports it looks, at face value, not much has changed in the intervening 35 years.

Certainly not in terms of the direct costs and fee structures. With so many years of capital markets development and technological progress the stand-out question is obvious: how come we’re still in the same place?

In our experience, the rate of tech adoption in this particular nontrading or “admin” part of capital markets processes has been significantly slower than it has been on the trading side.

We’re determined to change this. We at ScribeStar believe that technology can lower the costs of listing while improving the level of compliance and making the overall process more enjoyable.

Our platform allows listing documentation and transaction management to be done much faster and more efficiently (according to our clients in 50% of the time – watch this video by the London Stock Exchange in the related content section.)

[1]https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/1986/new-issue-costs-and-methods-in-the-uk-equity-market.pdf?la=en&hash=198D3F623920CBEF42551BF4CEC0B54C2207B38B

[2]https://www.oxera.com/wp-content/uploads/2020/11/Oxera-study-Primary-and-Secondary-Markets-in-the-EU-Final-Report-EN-1.pdf

[3]https://fese.eu/app/uploads/2020/03/200224-European-IPO-Report.pdf 

[4]https://www.lsegissuerservices.com/spark/scribestar-listing-cost-1986-versus-today

ScribeStar produces follow-on £400m equity issue prospectus for Smithson

Innovative digital ecosystem reduces the time and cost of equity issuance document production

London, 7 April, 2020. ScribeStar, a digital ecosystem that improves the efficiency and reduces the cost and time required for document production for capital markets transactions, was used by Travers Smith and Investec to produce the prospectus for Smithson Investment Trust plc’s 2020 to 2021 pre-approved issue of £400m of shares, announced on 1 April, 2020.

Launched by Fundsmith founder Terry Smith, and managed by Simon Barnard and Will Morgan, Smithson became the largest UK-domiciled investment trust when it raised £822.5m in October 2018, vastly exceeding its £250m target. The approval for the new issuance follows Smithson’s robust performance and strong investor interest.

Srinivas Suravarapu, CEO of ScribeStar, said: “Smithson’s focus on delivering ‘superior performance for a reasonable cost’ resonates with our mission of providing a cutting-edge digital platform that improves the efficiency and speed of creating capital markets documents and reduces the cost of production. We are delighted that Travers Smith, one of the leading capital markets law firms in the UK, has been a strategic partner as we have built the business into a digital ecosystem that improves legal and regulatory processes for the entire capital markets issuance process, for funds, IPOs, rights issues, AIM admissions and high yield bonds.”

Aaron Stocks, head of funds at Travers Smith, said: “ScribeStar helped us immensely on the Smithson prospectus and transaction documentation. The ability to link multiple documents within ScribeStar’s ecosystem meant that preparing all of the related documentation became much simpler and quicker and at a lower cost than traditional methods allow. Our funds team is constantly looking at ways to enhance our service to clients and we are very pleased to have been an early adopter of ScribeStar. What virtual datarooms did to enhance the efficiency and reduce the cost of due diligence by removing the need for physical documents, ScribeStar is doing for the capital markets space.”

Srinivas added: “The ScribeStar platform is perfectly set-up for remote working so there was no problem for the Smithson teams in producing the prospectus during this period of managing with Covid-19.”

ScribeStar’s leverage of dynamic data throughout its ecosystem allows far greater use of previous versions of documents, generating increased efficiencies when developing documents for follow on share issues such as rights issues, open offers or placing programmes. This was the case in the Smithson fundraising as the ScribeStar ecosystem could utilize the data, tagging and verification already embedded in the original prospectus. ScribeStar also embeds all ancillary documents such as power of attorneys, legal opinions and comfort letters, allowing changes to flow throughout each document thus saving time in the documentation production process. ScribeStar linked 20 documents in the Smithson transaction.

Contact Simon Barker at sbarker@barkercomms.com 

+44 7866 314 331

 

Scribestar look towards growth in 2019 as LSEG ELITE member

Scribestar joins the London Stock Exchange Group’s ELITE Programme for ambitious, high-potential companies

Scribestar look towards growth and investment in 2019 supported by LSEG’s ELITE programme.

London UK, Tuesday, 4th December 2018 – Scribestar, the London-based company focused on improving the efficiency of capital markets transactions through its online collaboration platform for document drafting, verification and publishing, is unveiling its latest plans for growth after successfully securing a place on the London Stock Exchange Group’s ELITE programme.

Established to create a highly-driven international business support and capital raising community for ambitious companies worldwide, the LSEG’s innovative ELITE programme provides a limited number of highly sought-after memberships for selected organisations. Creating a framework of support, the programme aims to guide member organisations to improve structure, increase growth and become more competitive in the global markets.

Scribestar CEO, Greg Lunn, comments:

“We’re thrilled to have been selected to join such a prestigious global programme. As an organisation, we’re anticipating being able to draw on the expertise of all those involved to build further on our successes so far in delivering significant efficiency and productivity gains to law firms and their advisors in managing the drafting to publication of highly-complex documentation for capital market transactions.”

Greg continues:

“We know our market proposition works – our client-base is proof of that – however what we now have is a unique opportunity to immerse the company in a wealth of experience, networking opportunities and access to funding options for future investment and expansion to help us really focus on our long-term goal of making Scribestar the de facto legal engine for any organisation involved in corporate fundraising activities.”

Umerah Akram, Head of ELITE UK & International, London Stock Exchange Group commented:”

“I’m excited to present the latest group of UK companies to join ELITE, a clear demonstration of the country’s ability to grow great businesses. These companies drive innovation, employment, and create opportunities for us all.

Umerah continued:

“ELITE is committed to giving the British business stars of the future the very best chance to succeed, providing them with access to appropriate expertise and capital. It is a unique, strong community of the best and most dynamic entrepreneurs, advisers, investors and business school academics from the UK, Europe and around the world.”

About ELITE
ELITE is a full-service programme designed to help ambitious companies prepare and structure for the next stage of growth through the access to long term financing opportunities. It is a unique offering for scale-ups across Europe and beyond, providing a comprehensive training programme and extensive access to the business and financial community. The ELITE Funding platform, launched in 2017, will also help streamline the capital raising process for ELITE.   For further information about the London Stock Exchange Group’s ELITE programme, please visit the official website at https://www.lseg.com/elite

Scribestar joins the Investment Association as FinTech member

Scribestar joins the Investment Association as FinTech member to help drive software adoption and industry efficiencies

Scribestar, the London-based company focused on improving the efficiency of capital markets transactions through its online collaboration platform for document drafting, verification and publishing, has joined the Investment Association (IA) in a new FinTech membership category.

The IA is the trade body that represents UK asset managers. Earlier this year, it launched the FinTech membership category to enable technology providers offering solutions to increase operational effectiveness and improve consumer outcomes within asset management and the wider Capital Markets.  Scribestar supports the investment industry by enabling Fund Managers to manage the risks inherent in the execution of complex capital markets transactions.

The online capital markets document drafting platform brings control to the process, by providing one document for editing and review, which is always up-to-date. It enables all the relevant parties instantly to access the transaction documents and track the status of activities; and with this real-time intelligence and an audit trail of the document history, they can manage stakeholder expectations and have full confidence that the completed transaction will comply with the various legal and financial regulations.

Greg Lunn, Scribestar CEO, said

“We are delighted that the Investment Association has provided a forum for us to engage more deeply with its members. Already used by IA members, our platform has proved it delivers significant efficiencies to deal teams, enabling team members to deliver drafting, due diligence, verification and regulatory compliance tasks, far more effectively, compared with current manual methods. We look forward to growing the value we can bring to the industry.”

Keith Phillips, the IA’s Director for Membership & Enterprise, commented:

“A core aim with our new FinTech membership is to help drive greater efficiencies throughout the asset management sector, and Scribestar is a perfect example of that solution focus. The platform offers asset managers a way to overcome some of the challenges posed by increasing cost pressures, tight deadlines and strict regulatory requirements. We welcome them onboard!”

 

For enquiries on IA FinTech membership:
Gillian Painter, Head of Membership: info@IAVelocity.com
T: +44 (0)20 3859 0748

For IA media enquiries:
Helen Ayres, Media Relations Manager: helen.ayres@theia.org
T +44 (0)20 7269 4696

About the Investment Association:

The IA champions UK asset management, supporting British savers, investors and businesses. Our 250 members manage £7. trillion of assets and employ around 100,000 people across the UK

• Our mission is to make investment better. Better for clients, so they achieve their financial goals. Bet-ter for companies, so they get the capital they need to grow. And better for the economy, so every-one prospers.
• Our purpose is to ensure investment managers are in the best possible position to:
o Build people’s resilience to financial adversity
o Help people achieve their financial aspirations
o Enable people to maintain a decent standard of living as they grow older
o Contribute to economic growth through the efficient allocation of capital.
• The money our members manage is in a wide variety of investment vehicles including authorised in-vestment funds, pension funds and stocks and shares ISAs.
• The UK is the second largest investment management centre in the world, after the US and manages 35% of all assets managed in Europe