Category Archives: Marketing

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

Key Takeaways from the European Issuers Webinar

ScribeStar Co-Founder and Executive Chairman Adam Shaw participated today in the Europeanissuers webinar on the Digitalisation of EU Capital Markets to discuss technology and market trends in the capital markets space. He was joined by Peter Kerstens, Adviser on Technology and Innovation at DG FISMA, Friedrich Luithlen Global Head of Debt Capital Markets at DZ Bank, Hervé Labbé, CEO of NowCP, and  Robert Koller, the Executive Chairman of the european primary placement facility (eppf).

The event came at a time when Europe is making strong strides towards a Capital Markets Union, and the market is rapidly adjusting to accommodate COVID19 induced demands for quick and efficient access to capital and for new ways of remote capital markets operations. It was an exciting panel of technology providers, bankers, and policy makers, each with a unique perspective on the role of digitalisation  in this respect, and what the European capital market of the future looks like. Below are just some of our takeaways from the discussion.

  • THE BIG TECH TRENDS:There are five notable technology trends driving innovation and change in the capital markets space. These are cloud computing, APIs, Big Data and analytics, Process Automation, and finally DLT, blockchain, crypto, and tokenization. Demand driven market transformation will also inspire regulatory change, but also induce a quicker tech adoption curve on the side of market participants and regulators.
  • LISTING PROCESS AND COSTS FOR SMEs: Though there is still strong demand for innovation on the trading and settlement side, technology advancements on the non-trading side have been slower. This is primarily in respect to documentation production and process management associated with bringing companies and transactions to market, and keeping them compliant with market regulations. For an SME a cost of an IPO can reach up to 15% of the value of the issuance, while regulatory burdens and costs associated with ongoing compliance are often mentioned by managers as some of the most laborious and costly business processes.
  • DIGITAL CAPITAL MARKETS ECOSYSTEM: In order to have a truly seamless issuance process, whether that’s via an independent bond or equity trading platforms or via an established stock exchanges, we have to create a digital environment where the pre-issuance documentation creation and compliance process is integrated with the trading side and linked with automated ongoing compliance. ScribeStar does that by bringing together multiple dislocated market participants to create and manage transaction documentation and process in a secure regulatory compliant digital environment. ScribeStar creates documents in structured data format, allowing for such level of automation and data utilization by the platforms and investors, regardless of the type of security, marketplace, or location.
  • THE ROLE OF STOCK EXCHANGES: To demonstrate this, we’ve mentioned our work with Aquis, a dynamic growth market in the UK, where we are redefining the standards of what an issuance process looks like, how much it costs, and how long it takes. By working together with the regulators, and by placing the issuance and compliance process on a digital platform, in an automated and templated way, issuers will be offered with a simple and efficient listing process, and thus cheaper and easier way to access the market and stay there.
  • REGULATIONS AND WHY WE NEED THEM: Regulations inflate post-crisis, and deflate in times when the economy needs a stronger boost. It is a cyclical process. There is an ongoing debate to reduce regulatory diversity at an EU level, but there are also decisions to be made in terms of the intensity of those regulations. It is a balancing act which has to be approached carefully, and considered in respect of EU capital markets harmonization as well as how it impacts on market participants. Ultimately, regulations are there to protect investors and the market as a whole. Technology is therefore a way of easing compliance with appropriate levels of regulation rather than reducing the levels of regulation. By automating and digitising regulatory processes, the associated time consumption and costs for complying can be reduced. Embracing digitalisation also helps regulators and policy makers to better understand regulatory impacts and make better educated decisions.
  • SUPPORT FOR INNOVATORS: If it doesn’t want to be left behind, Europe has to nurture and support innovation, and help build a strong technology infrastructure. We have to secure risk capital to help companies innovate and grow, and give them a playground where their technology can be tried and tested. For that purpose, sandboxes and a good safe environment to experiment in, while also allowing regulators and supervisors to learn directly from the innovators.
  • BOND TRADING PLATFORMS:Taking bond markets as an example, innovation will mostly be driven by large issuers who have identified shortcoming in the process, that being placement and allocation, documentation, settlement, underwriting, advice, or validation of decisions made by the issuers. From the current perspective there is a strong case to be made for platforms to address the issue of documentation, some aspects of trading, placement and allocation. We should also note that many liquidity bond trading platforms are natural monopolies. Whether that’s ok is a question for the market and policy makers. An example of such a question would be whether the dealers and the issuers would want independent bond platforms monopolising data that they would like to have access to.
  • EQUITY MARKETS:In respect of the equity market, especially SMEs, there is not a single solution that would fit in the same way as for bonds given the bespoke nature of each issuance and the fact that all of the current issuance processes are static and do not allow the use of structured data. Everyone agrees that SMEs have to have a clearer and easier path to market. Currently there are too many legal and compliance costs involved with that process. By creating a digital environment where structured data can be used for equity markets will allow automation, which will a significant positive impact for the market as a whole and in particular for SMEs. Automation will also allow for things to be better standardised, in line with the CMU HLF action points, and data will allow investors to be able to compare and understand investment opportunities quicker. Simpler analysis would drive more investments in SMEs, and more companies to market. Furthemore, enabling the issuers to work together with their deal teams, the exchange, the regulators and the market in a digital online manner will obviate the relevance of location and proximity.

The future looks bright, and there are many promising technology initiatives which will drive positive change. The only way forward is for the industry, technology providers, regulators and policy makers to work together. We enjoyed exactly such an experience in today’s panel. Many thanks to our panellist colleagues for the engaging discussion, all the participants for tuning in, and EuropeanIssuers for organising. We’re looking forward to the next one!

Digitalisation of EU Capital Markets

Join Adam Shaw Founder, Executive Chairman of ScribeStar at the European Issuers webinar on the Digitalisation of EU Capital Markets, alongside colleagues from DG FISMA, DZ Bank, European Primary Placement Facility, and European Issuers members.

This Webinar is part of European Issuers Capital Markets Webinar Series Programme on key trends in the capital markets space, in partnership with NASDAQ and Euronext.

Join to learn what the European public markets can do to make raising capital easier, how the efforts around the Capital Markets Union will affect exchanges, issuers, and investors, and how technology can help tackle these challenges.

Register for free here;
http://www.europeanissuers.eu/ecmwebinarsprogramregistration

Do you have questions or comments you’d like us to address at the event? We’d love to hear from you at info@scribestar.com.

For some background reading on the topic, here is our take on the latest High Level Forum Report on the Capital Markets Union – https://www.lsegissuerservices.com/spark/scribestar-digitalisation-stock-exchanges

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