When is the right time to list your firm on themarket? Marie Parck, responsible for listings at NASDAQ OMX Stockholm, unravels the terms, steps and conditions of the stock exchange.
What does it take to be introduced on the stock market?
“At NASDAQ OMX we provide two different offers. One of them is First North, which can be described as a market for growth companies, and acts as the first step for a company that wishes to be active on a public market. It is generally a little bit easier to enter than the main list. It has a more simple set of regulations and the entry conditions are not as high. Mostly it is aimed at smaller enterprises. The next step for many companies is the main market. However, it is not necessary to go through First North beforehand; many larger, established companies interests are in entering the main market directly.”
“To be listed on the main market – as well as First North – requires a certain level of administration and control. For example, the company has to have a functioning directorate with well-defined roles, a board that has experience from a stock exchange environment. There also needs to be some control functions with regard to financial issues and distribution of information. The company needs to make sure that the economic situation doesn’t rely on one individual and has clear and set routines. Also, there has to be an appointed spokesperson to comment externally on price-sensitive business matters.”
“For the main market there is a requirement that the company has a certain amount of shares available to the public, a so called ‘free-float’. On the main market the recommended free-float is 25 percent of the total shares. You also need to find investors and spread the existing shares among several owners. On the main market 500 shareholders holding shares with a value of around EUR 1000 is generally considered to fulfill the requirements. Also, the company has to follow International Financial Reporting Standards (IFRS), a global accounting principle. Everything that is considered price-sensitive information needs to be distributed in a certain way. Thus, you need to make sure that you have the right tools and processes in the event of a press release.”
“When entering the main market there is also a requirement for three years of interim reports. For the First North market you only need sufficient capital for the next twelve months, which shows that you have the possibility of lasting for a while ahead. A placement on First North is thus associated with more of a risk taking for investors.”
What is an equity issuance?
“Often a company wants to raise capital in connection togetting listed on the stock market. A common type of equity issuance is the initial public offering (IPO) where you offer shares in your company to the public. Also, as an already listed company it is common to raise capital for investments, expansion, acquisitions etc. Such a rights issue can be offered to existing shareholders as well as to a specific group of investors. Capital raising possibilities among investors that are willing to take some risk is one of the advantages of a listing. This is also the fundament of a stock exchange.”
What does it actually mean for a company to be listedon the stock market?
“Companies within the health care industry often put a lot of time and money into R&D and are therefore in need of capital. This is also the most important reason for many healthcare companies to enter the market. However, it also gives a quality stamp. As a publicly listed company you will be trusted more, since you have been reviewed and are always operating in an open environment. The other part is the possibility of using it as a way of marketing your business and attracting skilled staff, clients and suppliers. Sort of an employer branding you could say.”
“Also, if your company is working at an international level and, for instance, is doing business in certain parts of Asia, it could be crucial to be listed even to get meetings with customers. Thus, this position not only gives you an advantage, it is also required in some cases. Another benefit is that your stock can be used as a means of payment. If a company intends to make an acquisition it is possible to use the shares as payment in a transaction.”
”A natural part of our development”
One company that has made the journey through both First North and the main market is Swedish medtech firm CellaVision AB. According to CEO Yvonne Mårtensson, entering the stock market was an expected step in developing the business.
“For CellaVision it was a natural part of our development as a company. The aim was partly to gain a market place, but also to obtain a mark of quality, seeing that there is quite a process to becoming approved. Furthermore, we hoped to gain a bit more attention from both investors and from the media. In fact, the number of shareholders actually doubled between 2007 and 2010, after CellaVision had entered the main market. It gave us more freedom of action, should we have wished to raise more money, even if bringing in more funds wasn’t our main ambition.”
The company had prepared to enter the stock exchange already in 2001 but as the market plunged CellaVision backed out for a while. When the moment came to enter First North in 2007 the process was quick and smooth, as the firm had already been putting out quarterly reports and reported according to IFRS. The company remained on First North for three years before entering the main market in 2010.
“Being on First North was good practice, since the framework is more or less the same for the main market. Therefore it wasn’t a huge step for us to move forward,” Mårtensson says.
In general, the experience has been positive overall for CellaVision, specifically in getting more media attention and working at an international level. As a company, you should however be prepared for the fact that listing requires more resources.
“It does cost a bit to be listed on the stock market. We pay an annual fee and need more resources within the company to manage the official reporting. On the other hand, this has made us better at communication with our employees. In the end, all of the extra work and the requirements from OMX have been positive for us as a company,” Mårtensson concludes.