The dearth of Scots companies daring to float was a sure sign that confidence and the economy were weakening
STOCK markets are sometimes like the canary in the mine. They warn of – or “discount” in City of London parlance – troubles that lie over the horizon. This was the case in the year to March 2008, at least as far as new flotations were concerned.
In overall terms, the value of flotations involving Scottish companies or advised on by Scottish advisers slumped dramatically versus the same period last year. This was partly because, there was nothing of the scale of the floats of Cairn India and Standard Life. Overall, the value of IPOs advised on by Scottish-based advisors collapsed from £6.3bn to £1.1bn, while the number of deals fell from 15 to 12.
However within there were some bright spots. As the pipeline of domestic deals dried up, largely on fears that flotations might fail to raise sufficient funds, Scottish-based advisers are enjoying greater success in winning briefs from foreign-based companies seeking a London listing.
Figures for the year to March 2008 show that Scottish professional services firms advised on the IPOs of four overseas companies, up from three the previous year. However the value of such flotations soared to £616m. The biggest was the £360m IPO of South African mining group Metorex in November 2007, on which Scottish law firm Maclay Murray & Spens advised.
Another overseas deal was the £200m flotation of Cayman Islands-based Leaf Clean Energy, a company established to invest in renewable energy operations in the US, on which Shepherd and Wedderburn advised.
Scottish Aim floats, however, were thin on the ground. The only three that got away were the Fife-based cash machine advertising specialist i-design, Stirling-based insulation company Superglass and Livingston-based software group Craneware (see case study).
“Aim has all but dried up,” says David Cockburn, head of corporate finance at Grant Thornton in Scotland. “In July 2007 we had several in the pipeline but none actually went ahead.”
That was largely because of uncertainties arising because of the subprime mortgages crisis meant the owners planning floats realised they might struggle to get the price they wanted.
Craig Campbell, corporate finance director at Deloitte in Scotland, says: “Figures show that the trickle of Aim listings last year has dried up with a 40% drop in new fund-raisings this year. January was the lowest month since 2004. The slump in activity demonstrates just how sensitive Aim is to an economic downturn.”
Edinburgh and London-based investment bank Noble Group has taken to scouting for deals in US and India in order to fill the shortfall. Ben Thomson, its chairman, says Noble has a full-time executive in Houston looking for US oil and gas companies who might be considering a London listing, as well as 20 employees in Mumbai.
“Straightforward UK flotations are not very promising at the moment,” said Thomson. “The market for secondary fund-raisings on Aim is much more positive. We recently raised £22m for Kaza Energy in this way.”
McGrigors corporate partner Anna Brown is slightly more optimistic about prospects for Scottish and UK flotations. She says “As far as McGrigors was concerned, 2007 was a really busy year for flotations. We handled six, including Craneware, Braveheart, Stem Cell Sciences, Epistem, and Neuropharm.”
She adds: “So far, 2008 has been quieter. However, already this year we have advised Valiant Petroleum on its listing and recently won a beauty parade to advise on the Aim flotation of Indian power plant company OPG Power Ventures.”
Another sign of hope is that several leading Scottish-based oilfield services are expected to float — either on Aim or the main London market — within next couple of years. The leading contenders are PSN, which has appointed Goldman Sachs to look at strategic options, and Triton Group.
Jon Fitzpatrick, head of the energy practice at Brewin Dolphin Investment Banking, says: “Private equity is still active, but not as much as before and banks are not lending cash so easily, so companies will have to look to the stock market to raise the necessary capital.”
This article was published in Scottish Business Insider’s Deals & Dealmakers Yearbook 2008, published in August 2008.