Unlocking The Unlisted

De-equitisation is the latest buzzword in financial markets. Its origin comes as a result of the global substantial fall off in the number of listed companies on Exchanges and fewer entities going public. In London the main board exchange has seen a shrinkage of 318 companies over the past decade while AIM has seen an even sharper net loss of 389 firms over the same period. Moreover, the IPO pipeline has dried up.

The increase in delistings is understandably gathering pace as obligatory sponsor fees on AIM for example have become economically unviable, market maker spreads are too wide, frustrating sufficient liquidity while regulations, governance, compliance and Mifid 2 are all becoming too onerous for small caps in particular. Growing shareholder activism adds to this mixed cocktail.

It is of no real surprise therefore that more and more retail investors and angels are being encouraged to buy private shares from crowdfunding platforms, EIS schemes and VCT’s in fact the whole alternative finance space. But at the same time no-one is telling these investors how to get out when they want to. Exits and liquidity has only focused on trade sales, buybacks or public offerings.

The reality is that there is a desperate need for a mature in-depth Secondary Market in order to unlock the unlisted and provide liquidity solutions when the need arises.

Clarion calls for an unquoted market are coming from the Governments EIS Association, the UKBAA and other bodies.

Recognising the huge untapped market potential, we have been working hard to capitalise on the opportunity using our growing network at JP JENKINS, the oldest platform for private companies shares. JPJ is in its 29^th year and has earned its provenance and is well known amongst City veterans in particular. It has unrivalled expertise in unquoteds having been one of the originators of both USM that gave rise to Aim and the founder of OFEX (now NEX) Currently there are 31 private companies on the trading platform.

Now a number of brokers and institutions have recently increased their focus on supporting the unquoted arena such as Panmures, Numis, Cenkos, WH Ireland, Zeus and FinnCap. No doubt their covetous eyes are also drawn to the stats that reveal there is a capital pool estimated at approximately £300bn in UK private companies employing 15.5m people and generating combined revenues of over £1.8tn .Circa 30,000 companies have been financed to the tune of £26bn under EIS schemes alone. Of further interest, VCT’s have invested £7bn in private companies and P2P business loans to scale ups have reached an estimated £10bn. Further, according to the Employee Ownership Association there are 200,000 plus fully owned employee only shares sporting a combined turnover of circa £35bn. Not surprisingly many employees are seeking ways to explore the monetisation of some or all of their holdings.

Interestingly it has been reported that two thirds of overall privates are owned by ˜baby boomers’ implying that within the next 10 years or so the majority of ownership shareholdings will have to change hands due to age, ill health or retirement. This should unleash a wave of M&A mandates, some IPO’s and substantial secondaries transactions.

As a result of these trends, the UK Treasury has now commissioned a report on shareholder capitalism reminiscent of the Wider Share Ownership’ initiative under Thatcher in the 1980’s.

With many new companies now preferring to stay private it is easy to see why a de-facto private stock exchange could help monetise both employee and insider shares without the need to go public.

The purpose of highlighting all these revealing statistics is to both provoke thought and help illustrate the vast, almost untapped market opportunity that is rapidly opening up for a second market in order to provide exit liquidity solutions for both locked in shareholders and new opportunities for investors.

What we are likely to see over the next decade is private markets coming out of the shadows, becoming not only more active but also more transparent and more liquid. And possible new tax incentives to stimulate the secondary buyside challenges.

Well-developed venues for buying and selling unquoted shares like J P Jenkins are now needed to the point where the average private investor can put their capital and savings to work in multiple ways including the use of on-line marketplaces for private stock – effectively a clearing house for unlisted shares.