LONDON – The London Stock Exchange (LSE), in what is widely seen as a defensive move to counter competition from EASDAQ, Nasdaq and Euro.NM, recently unveiled techMARK, a new market for technology companies.
Speculation that the LSE was to shortly launch a separate technology stock market began circulating during the summer, at which time some observers predicted the new “market” was likely to take the form of a high-technology index rather than an entirely separate trading platform.
They were largely right. The LSE describes techMARK as “a market within a market” that will group together companies “whose success depends on technological innovation.” The definition of eligible companies includes not only dedicated technology providers and developers but also companies that are the end-users of developments in the high-tech field.
When techMARK kicks off in November, it will feature more than 170 existing LSE main market companies ranging from giants such as British Telecom, British Aerospace, General Electric and Glaxo Wellcome to minnows like Clinical Computing, Comino, Enviromed and XKO.
Entry to techMARK will be via a primary listing on the LSE main market. Acknowledging the specific needs of innovative growth companies, the LSE intends to introduce new listing rules, which would admit companies without a three-year trading history as long as they are capitalised at a minimum of GBP50 million ($80 million), are issuing at least GBP20 million ($32 million) worth of shares and undertake to meet quarterly reporting requirements.
By grouping together technology stocks irrespective of size or sector, the LSE claims techMARK brings a “third dimension to investment” by giving innovative technology stocks “greater visibility and profile, enabling investors to identify technology companies with ease.”
These assertions appear to beg the fundamental question of why smaller innovative companies in particular, historically have found it difficult to attract United Kingdom investor interest or to tap international sources of capital. The inability of investors to identify such stocks seems a less likely explanation than simple lack of appetite.
According to a recent survey published by London investment bank Granville, smaller company fund managers rejected the argument that London needed a dedicated market for technology stocks, citing as evidence the failure of the Alternative Investment Market (AIM) to attract research resource and liquidity.
Commenting before full details of techMARK became public, British Venture Capital Association (BVCA) chief executive Ron Hollidge said the BVCA’s stance is that “the ultimate solution for enterprise companies is the development of a really significant pan-European enterprise stock market.” Elements of such a body exist within existing European markets such as Euro.NM, EASDAQ and the LSE, Hollidge said, but none yet offers a full answer to the liquidity problems of high-growth technology-based firms. The BVCA ideally would like to see European stock markets cooperating to build a network that parallels Nasdaq, which, unlike techMARK, has no minimum valuation entry requirements.
It is difficult to see how the creation of a new index will improve technology companies unless, as the LSE suggests, difficulty in identifying innovative technology-based firms has been the principle factor deterring many institutions from investing in such companies.
Some observers, however, do not share these views. Friends Ivory & Sime fund manager Bill Brown says techMARK “will provide a focus for technology companies and encourage more institutional investment either through the creation of funds which track the new index or allocating a percentage of their assets to this market.” CSFB director David Clayton also expects specialist technology funds to emerge and believes that existing funds have found it difficult to identify the right stocks.
Jim Martin, 3i’s director of technology investment, meanwhile, believes that the new market within a market not only will succeed in helping fast-growing companies raise later-stage funding but also will stimulate the availability of venture capital. “The most important drivers of venture capitalists’ appetite for young technology businesses has been the receptiveness of the quoted market. This [techMARK] initiative will increase the level of … funding available at the start-up and early stages,” Martin said.