Growing attractiveness of joining stock market

When the eve of millennium business and economic climate in the State comes to be assessed, 1997 will be judged the year of increased stock market flotation.

Last year no fewer than 10 Irish businesses went to the markets, compared to one in 1996, one in 1995 and four in 1994. Several factors - the expansion in the IT sector, the buoyant economy and the creation of a new market for developing companies - contributed in part to this sharp increase.

However, it could be just the most profitable of coincidences. Only a few Irish companies, including Athlone Extrusions plc, have floated on the Stock Exchange so far this year, despite the continuing relevance of the above factors. Whatever the reason, in 1997 10 Irish firms stepped into a world where the selling and buying of their shares is taken out of their hands.

While it is a complex process, most of these companies went to the markets for one simple reason - to raise finance for further expansion. Their first step was to become a public limited company (plc). This means they received a trading certificate and subsequently could begin the complex application procedure for a listing on the Stock Exchange.

The Irish Stock Exchange consists of three different markets - the Official Listing, the Developing Companies Market (DCM) (which came into existence early last year) and the Exploration Securities Market (ESM). To receive a full listing a company must have at least a three-year trading record and adhere to stringent regulations.

Smaller companies usually opt for a DCM listing, as the entry requirements are not as strict and only stipulate a minimum one-year trading record. Other options are the London equivalent of DCM, the Alternative Investments Market (AIM), a full London listing or the Nasdaq market in the US.

Several of the companies that went for a DCM listing last year did not stay there long before moving on to a full or official listing. One such company, recruiting giant Marlborough International plc, was there only a few short months before a crucial acquisition gave it the muscle to move on up the trading ladder. The company is now worth approximately £70 million. Mr Adrian McGennis, group director of the Marlborough Group, the largest recruitment company in Ireland, was there from the first days of the company going public. They took the decision to float on the DCM and the Alternative Investment Market last year.

"The main reason for the initial flotation was to enable us to acquire other companies outside Ireland and to increase our profile - we have found that going to the markets has lent a lot of credibility to our partnerships with other organisations," he says.

"It has also involved the staff in the success of the organisation - they now have share options. But most of all it provided us with funds to invest in future growth and we could look at acquisitions," he says.

It meant that Marlborough International could acquire Walker Hamill - an executive recruitment company in the UK - and shortly afterwards they went for a full listing on both the London and Irish stock exchanges.

For Qualceram, a ceramics manufacturer, flotation was a natural progression when, after 10 years, the company needed to raise more finance if it was to continue to grow and expand. The company raised £2 million from the sale of shares when it went to the markets in April last year.

Mr Aidan Clince, company secretary, explains why the firm chose to be listed on the Official Listing rather than the DCM. "We felt that if we were on the DCM it would only be a stepping stone and we wouldn't be there very long, so we went for a full listing," he says.

As with Marlborough International, the flotation made millionaires of the company founders who still hold a 64 per cent stake in the Arklow-based company.

Among the other developments that resulted from the company being listed was increased international interest which strengthened its position when embarking on a joint venture with a Turkish company. Mr Clince says that the flotation also helped in retaining and employing key members of staff who were attracted by the prospect of working for a plc whose continuing expansion offered significant promotional opportunities.

In order to attain a full listing on the Stock Exchange, a company is obliged to put together a comprehensive prospectus which includes everything from information on company directors to financial data. It also must justify why it is coming to the capital markets, whether it is to achieve increased liquidity of shares or for prestige. It must also prove that it has a strong track record of having operated successfully in the current market.

For Donegal Creameries, a small company that was originally a co-op, the path to flotation began when it converted to plc status in 1990.

The structure changed from a one member, one vote set up to a shareholding operation where the largest stake was held by those with the biggest number of shares. In this way it ran its own internal trading market which was not subject to the stringent laws of the Irish Stock Exchange.

Financial Director, Mr Dominic Kelly, says that they decided to apply for a listing to increase the marketability of shares which, pre-flotation were confined to trading between the 1,500 shareholders. "We no longer control our shares," he says. "It is easier to buy and sell shares and the share price has gone up."

Last year, the average daily turnover in Irish equities was in excess of £90 million. In recent times there has been a drop in the share prices of even the most successful Irish companies but, for the most part, this is not seen as a reflection on the value of the company but rather a side effect of the volatility in the world economy.

Moreover, every day those IT firms, manufacturers and former mutual building societies that have gone the public flotation route are counting the benefits of the move.

The recent disclosure that Irish Permanent, which floated four years ago, is in talks with Irish Life about a possible merger is just one example of how the Stock Exchange can broaden a company's business horizons. Stockbrokers predict that many more Irish companies, especially in the booming IT sector, will be joining them on the trading floors of Ireland, London and the US before very long.

Stockbrokers predict that more Irish companies will be joining them on the trading floors