New market for private companies – PISCES – is a welcome development, but…
Today sees further details announced about a new type of market for private companies, the Private Intermittent Securities and Capital Exchange System (PISCES), an idea which was first announced in the chancellor’s Mansion House speech last year. The new market, which is expected to go live later this year, will allow private companies to periodically open up to raise capital by way of auctions and in so doing provide existing shareholders with the opportunity to sell shares, without moving to daily sharing trading and live pricing. At launch the new market will be open to professional and sophisticated investors, not retail investors.
Jason Hollands, managing director of Evelyn Partners, the wealth manager, commented: “This is a welcome development and a genuinely innovative one for the UK’s capital markets. It creates a hybrid market that will provide private companies with access to periodic liquidity windows, without taking the leap to a full listing of their shares on AIM or the main market which would entail the daily trading of their shares and demanding disclosure requirements.
“PISCES will enable companies to choose whether to restrict auctions to a limited group of investors or open up more widely, thus enabling them to evolve their ownership structures in a controlled manner and to determine the pricing range. This will provide a helpful bridge for companies who are not yet ready for an IPO, but who may be on a journey to public markets over time.
“At the margin, this may well have a knock-on impact for AIM – the London Stock Exchange’s market for small and medium sized growth companies – which turns 30 next week on 19 June 1995. Some private businesses who might have previously contemplated joining AIM as the next step, may conclude this is a much better option for the next stage in their evolution.
“It is no secret that AIM has been struggling in recent years, with a dearth of new admissions, private equity buyouts, and other companies moving to overseas exchanges or the main market. In fact, AIM has been shrinking at rapid pace with the number of companies on it now at about a third of what it stood at during its peak in 2007. AIM’s challenges are in many ways an amplification of the wider issues that have faced unloved UK equities in recent years.
“The chancellor’s decision in her Budget last October to halve the amount of inheritance tax relief of AIM companies will provide a further headwind for the market as investors seeking to mitigate IHT by investing in AIM companies has previously proven a meaningful group of owners for a market of relative illiquid companies. Some fund managers expect to see a sizeable exodus of companies from AIM over the next couple of years as a result.
“I do think policy makers need to strike the right balance in measures to bolster investment across the full spectrum of UK equities. The development of PISCES and the recent Mansion House Accord are aimed at supporting investment in private markets, but we also need to reinvigorate UK public markets too where lack of demand and consequently low valuations are an issue. It would be disappointing to plough so much effort into supporting fast-growing UK private companies, only to then see them continue to be lured overseas to markets like NASDAQ and the NYSE as they reach a size and stage when they are finally ready to IPO.”