Equity capital markets (ECM) volume in EMEA for the first half of 2019 was down 33% on the first six months of last year, according to Dealogic, but there was some reason for optimism, notably a strong run of IPOs in the second quarter.
After the quiet start to 2019, that was a welcome boost to ECM bankers who went to work on some large technology flotations, notably for Italian software company NEXI ($2.3 billion) and Emirati fintech Network International Holdings ($1.6 billion).
The first half of the year also witnessed a strong aftermarket performance for IPOs of above $50 million, with EMEA issuers giving buyers an average 15.1% return in the first week after launch, up eight times from the first half of 2018 and the highest average one-week return for any six-month period since 2013.
This, once again, raises the question of who benefits from these pops and the extent to which ECM structures favour a few well-connected institutional buyers and exclude retail investors that may be patient, committed, well-informed holders of issuers’ stock.
Anand Sambasivan, PrimaryBid
Large technology IPOs may be the most closely watched component of the equity new issue market, but behind those headline deals, change is coming.
PrimaryBid is focusing on follow-on issues for already listed small companies, which tend to be sold at a discount to institutional buyers, even though these stocks may be widely held by individual investors.
Retail is a rich potential source of new capital that has been dismissed as too expensive and troublesome to access almost since the big UK and European privatizations of the 1980s.
“The formation process in the public market has barely evolved in decades,” says Anand Sambasivan, co-founder and chief executive of PrimaryBid.
PrimaryBid is an FCA-regulated platform that connects this large pool of retail investors with listed companies so that when they seek new capital the man or woman in the street can buy – using their credit cards – the same class of shares, at the same time and, most importantly, at the same discount as institutions.
It’s an obvious application for new financial technology’s capacity to democratize markets through an execution-only service that doesn’t extend to advice, doesn’t charge individual investors and derives a fee on sums raised from issuers.
The company has focused so far on the AIM segment of smaller growth companies run by the London Stock Exchange. “We have completed 48 deals raising close to £65 million with retail investors buying anywhere from £100 to £500,000 of stock but with a typical ticket size of around £7,000,” Sambasivan tells Euromoney.
The formation process in the public market has barely evolved in decades
– Anand Sambasivan, PrimaryBid
For example, back in February, PrimaryBid led a £2.57 million placement for Scientific Digital Imaging, which designs and manufacturers digital imaging, sensing and control applications for clients in life sciences, healthcare, astronomy, manufacturing and art conservation, to fund an acquisition.
The deal was strongly oversubscribed in part thanks to demand from retail investors who were allocated £100,000 worth of the new shares.
“At the company’s previous general meeting, retail investors had been saying they would like to participate in any new capital raising,” Sambasivan says. “Without us, they wouldn’t have been able to participate. And since that deal the share price has increased 60%.”
Yes, it does sound like small beer.
But the AIM market was always the testing ground and PrimaryBid has attracted notice. In September, PrimaryBid raised £8.6 million itself – far more than the typical AIM follow-on of just £2.5 million or so – in a series A round from venture capital funds led by Pentech and Outward VC.
Pentech was an early backer of Nutmeg, which recently closed a £45 million funding round led by Goldman Sachs. Outward VC is backed by Investec Bank and NIBC among others and looks for fintech companies focused on large global opportunities.
PrimaryBid has big plans for the money. In the third quarter of 2019, it expects to do its first deal in Europe on a new platform developed with Euronext on an exclusive basis across nine countries.
“There is a great deal of localization in European stock markets, with UK buyers investing in UK companies, French buyers concentrating on French stocks and so on. But there is no need for that,” says Sambasivan. “We are building a pan European gateway that will allow listed issuers to access a large pool of retail buyers at the touch of a button.”
His expectation is that this may attract medium-sized companies in Europe, perhaps up to members of the FTSE 250, in its first market of operation.
“Many accelerated bookbuildings get done in Europe outside the restrictions of the prospectus regime, subject to a cap of €8 million,” Sambasivan points out.
“We did one deal recently where we generated £10 million of retail demand inside 90 minutes. Now, we don’t want deals to be all sold to retail. They should be institutional-led. But retail should be allowed in on the exact same terms. And that kind of participation can be very useful in a €100 milli