The QCA 30th Anniversary forum was held on the 9th June 2022 in London. As part of the event, the first panel session looked at Making More of the Market and was Chaired by James Ashton, Financial Journalist. The panellists were: Albert Ellis, Group Chief Executive Officer, Staffline Group plc, Sangita Shah, Non-Executive Chair, Kinovo plc and Adam McConkey, Portfolio Manager, Lombard Odier Investment Managers & Chair, Quoted Companies Alliance.
It is no surprise that the QCA is an advocate of financial markets. However, with the decline of listings over the last 20 years, we felt it was important to revisit the topic and investigate the current issues being faced by companies looking for finance - whether exploring options for expansion and growth through public or private means through to those who face more pressing decisions and may be at risk of bankruptcy.
The session examined the difference between private and public markets, the company view of the market and also took a deeper look into why investors are looking at the long term.
Public vs. Private Markets
Whilst there are arguments for both sides when it comes to the debate between being public or private, on balance - and from the panellists’ experience - public markets are the most rewarding and arguably the most successful. Various reasons came through from this argument:
- Whilst the high cost of public listing is often cited by advocates of private markets, there are often hidden costs associated with private companies that are not always visible from the outset. This can lead to a skewed understanding of the exact difference of cost between taking a company public or seeking private investment. Such associated costs include management fees and interest rates - which for certain types of companies can be very high. Furthermore, whilst we generally have enjoyed relatively low interests rates in some areas, this is a situation that may or may not change in the future.
- In times of difficulty, public companies often have more support, more options and often experience higher levels of trust from their stakeholders which can mean everything when trying to find solutions in tough times. When a private company is faced with a scenario that forces it to go into receivership, banks are very quick to seek a return of their own money. This situation is exasperated also due to the current impersonal nature of banking including frequent changes within departments which limits the ability to build relationships and leave companies very vulnerable. This is in stark contrast to public companies where there are alot more options, a lot more confidence and the management team is supported through the difficulty.
- A good public company is valued by various stakeholders and those in the supply chain, particularly due to the level of transparency required for being public. The government, for example, values the transparency that comes from working with a public company. Private companies lose this transparency and are effectively in the dark.
- Being public can allow some companies to have insulation and veracity to manage difficulties and corporate governance has an important role to play although it needs to be the right and proportionate governance. But in a private environment there is more opportunism, more short term objectives. Dicing up of legacy and communities of individuals where there is a robust business.
The virtues of Public Markets
Looking back over the last two years, we can see how benevolent it is to be listed, particularly in the area of secondary raising where we can bolster balance sheets.
For public companies it is a much more forgiving and understanding arena that allows management to go to shareholders for support, whereas in a private company you need to ask for permission which can be very difficult to obtain if key decisions need to be made in times of crisis.
It is also important to note how much currency is held within the power of staff. In a public company, soft power has a huge impact; whether companies choose to issue LTVs, Estocks, etc; staff genuinely love being a part of a PLC.
Public companies are at the forefront of innovation; much more so than private companies. Public companies spearhead the economy and have a unique ability to sculpt and engage with the community. They are deemed captains of industry due to their direction towards innovation and growth and that is what being in a public market is all about. They excel in strategy and often times it is overlooked exactly how much private companies focus on financial engineering, tax planning or cost cutting.
That said, there is a role - although very small who are better off in the private environment but it is possible to become public again, it is not necessarily a hard divide. Private to public transitions do need to be managed, patience is needed as well as supportive, long term relationships.
The importance of choice
One of the key functions of the markets is choice. When you look beneath the surface, the market is always fluctuating. On average between 50 to 100 companies come and go every year; in 5 years we won't know what the market will look like. Investors want choice - it's not necessarily about having the best companies, but it is about diversity and allowing the market to figure itself out. The market is adaptable and flexible and within that comes failure which is something that needs to be embraced.
Closing remarks on making more of the market:
- From research to marketing, listed companies should aim to press as many buttons as they can. There is a lot of value in adopting an approach where specific things are marketed to relevant sectors. It is also important to note that the costs of governance have value.
- Keep talking and keep conversations going. use the networks and use the public markets
- Decouple the narrative that being public is associated with high cost. Educate future generations of leaders and share information on different platforms so that we stay relevant, demystify and re-educate.
- A market structure that encourages listing and growth is important. Which market a company is listed on is the less important point, collectively we need to encourage the culture of equity which has gone missing. This begins with the different areas at the heart of the work of the QCA. Showing where regulation might block companies from listing, the recent corporate governance review for example and where markets can be redesigned to be more attractive, like with the work from the Listing review, is key to this.