The London Stock Exchange (LSE) launched a High Growth Segment of its Main Market in March of this year. The new segment will give private equity (PE) backers an alternative avenue to realise their investment in fast-growing portfolio companies.
Pre-proposal discussions highlighted the Government's increasing concern with technology companies opting for a listing on the Nasdaq instead of an initial public offering on the LSE's Main Market. The new segment is intended to be a launch pad for companies that are too big for AIM yet unwilling to relinquish substantial control.
It had becoming increasingly apparent that the 25% free float requirement of the Main Market was a distinct drawback in comparison to the Nasdaq on account of PE investors often wanting to retain their equity stakes for longer in order to achieve full returns.
Arguably the most distinct feature of the new segment is a minimum free float requirement of 10%. This means that founders and their private equity investors will be able to retain up to 90% of their companies. This lower threshold will no doubt make the segment a more attractive venue for venture capitalists and PE investors when assessing their channels of liquidity.
The other key requirement is a historic revenue compound annual growth rate of 20% or more over a three-year period. While this is a demanding condition, the companies displaying this steep rate of growth are arguably often exactly the type of companies that are usually part of PE fund portfolios.
Whatever the verdict is on this new segment at present, it will be interesting to see, given the lingering investor caution, whether it will combat the lure of the Nasdaq for PE houses. Watch this space for further updates.