RR Phantom
Location : Wasted Space
Job/hobbies : Cayman Islands Actuary
 |  Subject: Going public overseas is a capital idea  Sat Jun 11, 2011 5:29 am | |
| And Australia is among the markets US firms are choosing to raise cash, writes Graham Bowley.
R eva Medical, a maker of medical devices in the US, wanted to go public last year to raise money to satisfy impatient venture capitalists and finance research for its heart stents.
But it found little investor interest at home for an early stage medical device company that had not yet made a profit.
Reva Medical did what a small but increasing number of young US companies are doing - it looked abroad for money, in Reva's case the Australian sharemarket.
After an eight-month road show, pitching the prospects of a biodegradable stent, the 12-year-old company sold 25 per cent of its stock for $US85 million ($80 million) in an initial public offering in December.
''There are so many companies that require capital like our company and they don't have access to the capital markets in the United States,'' says Robert Stockman, Reva's chief executive. ''People are looking at any option to stay alive, which is what we did.''
Reva's example shows that about three years after the financial crisis began, markets in the US are barely open to many companies, leading them to turn to investors abroad.
Denied a chance to list their stock and go public in the US, they are finding ready buyers of their shares on foreign markets. About one in 10 American companies that went public last year did so outside the US. Besides Australia, they turned to sharemarkets in Britain, Taiwan, South Korea and Canada, according to data from the consulting firm Grant Thornton and Dealogic.
The 10 companies that went public abroad in 2010 - and 75 from 2000 to 2009 - compares with only two US companies choosing foreign exchanges from 1991 to 1999.
The trend reflects a decidedly global outlook towards stocks, just as the number of public companies in the US is shrinking. From a peak of more than 8800 US companies at the end of 1997, that number fell to about 5100 by the end of 2009, a 40 per cent fall, according to the World Federation of Exchanges.
The drop comes as some companies have merged or gone out of business or been taken private by private equity firms. Other young businesses have chosen to sell themselves to bigger companies rather than go public.
To be sure, as the economy improves and investors shaken by the financial crisis regain their confidence, American sharemarkets may again open up for companies trying to go public and listings may rise in the US.
LinkedIn, the social networking site for business professionals, had a successful initial public offering last month on the New York Stock Exchange. Groupon, the social buying site, has registered its plans to go public in the US.
But these are big companies, enjoying the popularity of being internet darlings. Executives and analysts fear a long-term structural shift in US equity markets means these markets are closed to many smaller, more ordinary businesses.
They could more easily have gone public in the US in the past. But they now remain private or, for the time being, have to market themselves overseas and rely on foreign investors.
For example, initial public offerings by American companies totalled only 119 in the United States last year, according to Dealogic - higher than the depressed rates of the previous two years but a far cry from the 756 companies that went public at the peak in 1996.
As young, fast-growing companies are forced to look overseas for public status and investors, executives and analysts fear that they may increasingly shift their geographic focus - and as a result any jobs they create will be abroad.
''Issuers have to put themselves through a grinder to go overseas, so any significant percentage of overseas listings is a sign that our markets have become hostile to innovation and job formation,'' says David Weild, a former vice-chairman of the Nasdaq stock exchange and a senior adviser to Grant Thornton.
A variety of factors explain each company's decision to list on a foreign exchange, such as the increased regulatory costs of going public in the US. Underwriting, legal and other costs are typically lower in foreign markets, companies say.
The Alternative Investment Market, a part of the London Stock Exchange intended for small company listings, is a popular destination for US companies.
The cost of an initial public offering there is about 10 per cent to 12 per cent of total capital raised, compared with 13 to 15 per cent on Nasdaq, according to Mark McGowan of AIM Advisers, which helps US companies list on the Alternative Investment Market.
In addition, the extra annual cost of maintaining a public listing can be typically much higher in the US: $2 million to $3 million each year depending on the size of a company compared with a cost as low as $320,000 on the AIM or $100,000 to $300,000 in a market like Taiwan, according to advisers.
There are concerns some foreign exchanges attract companies because their oversight may be less stringent. But companies insist standards are high.
A more important factor than cost, says Sanjay Subhedar, managing director of Storm Ventures, a California venture capital firm, is that investors in the US who traditionally participate in IPOs and the banks that underwrite the offerings are no longer interested in share sales by small companies.
I
nstitutional investors like mutual funds want the liquidity of larger offerings with abundant buyers and sellers, he says; bank underwriters want to focus on the more lucrative fees that bigger deals generate.
For some companies, the move to a foreign exchange may make long-term strategic sense as their growth shifts away from the US to markets such as China and India.
Samsonite, the luggage company founded in Denver in 1910 but which shifted its corporate location to Luxembourg in 2009, now sees most of its growth coming from Asia. It plans a $1.5 billion offering in Hong Kong next week.
The attraction of an Asian listing will be underlined further this month when Prada, the Italian fashion house, lists its shares in an offering that could generate $2.5 billion, also in Hong Kong. But while some companies see their foreign IPO as a long-term move, others see it as an interim step, one that after further expansion could lead them to seek investor interest back home and a dual listing in the US.
One reason Reva Medical chose Australia was the country's system of research hospitals that it intends to use for its clinical trials. Stockman, the chief executive, also sits on the board of another company, HeartWare International, based in Massachusetts and Florida, that carried out an Australian IPO in 2005, and then listed on Nasdaq in the US in 2008.
In its Australian IPO, Reva sold stock to investors from Britain, Australia and Hong Kong, as well as the US.
Stockman says two Wall Street investment banks told him there was no interest in an offering of the company in the US. Instead, he found an underwriter, Inteq, in Australia. The cost of the Australian listing was $US7 million, about what it would have cost to list in the US, he says.
One of the biggest costs was travel time and flights. He says that he would have preferred to list in the US in the first place - after all the travelling back and forth to Australia and the long roadshow in Asia, the US and Europe. ''All things being equal, it would have been easier. It is a long way.''
http://www.smh.com.au/business/going-public-overseas-is-a-capital-idea-20110610-1fwmt.html |
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