How secondary markets benefit corporate financiers

Sophie Douglas highlights the benefits to corporate financiers of joining a secondary market network of advisers

As the Financial Times suggested in March this year, the current economic climate has proved profitable for advisers such as solicitors, accountants and corporate financiers as a wave of delistings hit the senior markets.

However, while some corporate financiers have been quick to profit from companies delisting, there are many who have failed to take advantage of the business opportunities provided by secondary markets such as multilateral trading facilities.

So, why are secondary markets proving so popular, what exactly is a multilateral trading facility, and how can corporate financiers benefit from joining a secondary network of advisers?

How the senior markets are failing
Under the current market conditions, an increasing number of companies are finding the cost of being admitted to senior markets, such as AIM, far outweighs the benefits. The costs of maintaining an AIM admission are around £150,000 a year, with some companies shelling out up to £250,000 a year.

Not only are fewer companies joining the market, unprecedented numbers are leaving. So far, 147 companies have delisted from AIM in 2009.

While there is no doubt many AIM companies are feeling the pinch from costs associated with a public quotation, the advantages of trading on an alternative market also hold a strong attraction.

One of the most attractive alternatives to the senior markets is a multilateral trading facility.

Multilateral trading facilities are ideal for companies whose shares are traded infrequently. They can offer an exit route to existing shareholders, including employees. They can provide an internal market, as well as assistance with valuing the company for taxation or estate valuation purposes, allowing companies to maintain a high profile.

Importantly, relatively low admission fees and inexpensive ongoing costs mean it’s possible for some companies to save up to £145,000 a year by leaving AIM and trading on a multilateral trading facility. In addition, the more lightly regulated nature of multilateral trading facilities means they can also offer a significantly simplified admission process compared to senior markets.

One of the most common problems affecting companies whose shares are traded infrequently is wide bid-offer spreads, caused by lack of liquidity. The problem is magnified when wide spreads disadvantage those who the share issue was originally intended to benefit or incentivise such as the shareholders, customers and members or supporters of the organisation.

Some multilateral trading facilities can overcome this problem by removing bid-offer spreads and trading shares at a single price. The shares are traded at auctions which take place at a frequency that meets investor demand. This provides investors with a fair and transparent pricing mechanism which allows them to see the supply and demand in the market.

Multilateral trading facilities also offer companies a certain flexibility not provided by most senior markets. For example, senior markets simply cannot fulfil the requirements of a company that wishes to restrict trading to a defined audience.

With significant cost-savings, a straightforward admission process and a degree of flexibility the senior markets cannot match, it is easy to understand the attraction multilateral trading facilities hold for an increasing number of companies.

The benefits to corporate financiers
Before joining an alternative trading platform however, many companies need legal or corporate finance advice. For example, a company may not have been publicly traded on a market before and may require amendments to its memorandum and articles of association to prepare it for trading.

Multilateral trading facilities aren’t always best positioned to offer such advice and, as such, rely on a network of qualified advisers who can provide applicant companies with the expert help they need.

Companies considering joining a multilateral trading facility, or who are already trading on one and are in need of advice, trust corporate financiers to find the best solutions and transactions for their boards and shareholders.

It makes sense then, that the greater the understanding corporate financiers have of multilateral trading facilities the better qualified they are to advise their clients on the best course of action.

By joining a secondary market advisers’ network, and working closely with the market, corporate advisers are able to demonstrate a depth of knowledge and level of expertise non-members are simply not privilege to.

Such a deep level of expertise also means members of an advisers’ network are well positioned to secure the applicant company as a long-term client for services above and beyond the completion of the secondary market application.

Other benefits include the cost-effective nature of joining a secondary market advisers’ network and the ease with which corporate financiers can be admitted. While meeting the requirements of an AIM or PLUS adviser can prove costly, joining a secondary market network of advisers is free and admission is quick and easy.

The only criteria which has to be met is the ability to demonstrate an understanding of the market and the benefits it affords to traded companies and the investors who deal in their shares.

Furthermore, corporate financiers who join a secondary market network of advisers are often able to exploit significant promotional opportunities, including publicity via the secondary market’s website and marketing materials, and the possibility of joint seminars on topics of interest common to target clients.

With secondary market advisers’ networks offering the opportunity for advisers to increase their number of referrals, tap into new revenue streams and exploit additional marketing opportunities, it’s a wonder more corporate financiers aren’t taking advantage of this golden opportunity.

About Sophie Douglas
Sophie Douglas is the manager of Sharemark, a stock market for smaller companies. Having joined Sharemark in 2006 as business development executive, Sophie took on the role of relationship manager in 2008 before being promoted to manager in April 2009. Sophie is responsible for the day-to-day running of Sharemark.