Précis - The Government has announced proposals that will see the listing rules relaxed for high-growth companies seeking to list in London.
What? Currently, London is playing second fiddle to New York when it comes to tech IPOs. The Government and the London Stock Exchange (LSE) are looking to reverse this trend by introducing new rules that will attract high-growth companies, particularly in the technology and internet sectors, to London's public markets.
So what? The announcement of a new route to market for high-growth companies forms part of the Government's wider economic stimulus plan and could provide the much needed investment for tech companies in the absence of lending by many banks. The Government is keen to grow the UK technology sector which is seen as a key engine for jobs and growth (as evidenced by the Government's drive to support East London's "TechCity" which is home to companies such as Facebook, Google and Intel).
Until the new proposals were announced, the UK had risked losing out to the US in the tech IPO stakes. In April 2012, the US Government passed the JumpStart our Business StartUps (Jobs) Act, which sought to boost investment in growth companies by streamlining the regulatory requirement for listing on US public markets. The UK Government and the LSE hope that the proposed new changes will put London back on an even keel with New York, although that seems to us unlikely in the short to medium term.
According to various reports, the proposed new route to market will likely feature a relaxed free-float requirement. Companies could be allowed to list less than the currently required 25% of their shares (perhaps as little as 10%). Companies may also be permitted to present accounts for fewer past years. The Government will also review the current regulatory framework to determine if it is deterring investment in high-growth companies. The hope is that these measures will boost UK tech IPOs.
The relaxation of the free-float requirement is likely to be controversial amongst many investors, who are concerned about the effect on minority shareholders' interests if free floats are lower than 25%. They also argue that a lower free float may negatively impact share liquidity and shareholder diversity. Investors will have the opportunity to voice their concerns during the consultation process and any new measures will have to be approved by the Financial Services Authority before they are implemented.