Anything the Americans can do, Europe can do too. At least, that’sarely two dozen companies have taken the Brussels route. part of the thinking behind Easdaq, the fledgling stockmarket for high-growth companies with a pan-European outlook.
Launched in September 1996, Easdaq (short for the European Association of Securities Dealers Automatic Quotation) has been closely modelled on the long-established American market, Nasdaq. Easdaq’s rule book, for example, bears a striking resemblance to Nasdaq’s. This is hardly surprising given Nasdaq’s position as shareholder in – and adviser to – its European counterpart. It is a deliberate attempt to make it simpler for companies to list on both markets.
A screen-based market centred in Brussels, Easdaq has been following a slowly-but-surely development path. With only 25 companies and a total market cap of just over $9bn, there has been no explosion of pan-European flotation frenzy. “In the first year we put down a very strong infrastructure,” says a spokeswoman, explaining that the market’s primary aim was to develop a network of market-makers across Europe. “We are operating across 12 countries,” she says. “We took a strategic decision to focus on the larger companies which would benefit most from a pan-European presence. We are best-suited to companies with European aspirations.”
Companies at any stage of development are eligible to join Easdaq, though there are some qualitative and quantitative criteria to be satisfied. For example, companies must have assets of at least ecu 3.5m (#2.33m) and capital and reserves of at least ecu 2m (#1.33m). There is no minimum profitability requirement, a reflection of Easdaq’s aim to support high-growth businesses. But, to be considered for trading on Easdaq, companies have to go through a formal review and appoint an Easdaq-approved sponsor.
Easdaq is eager to develop a high-class reputation so, as with Nasdaq, regulation is “very tight”, according to Easdaq’s spokeswoman. Easdaq is self-regulating, the market authority being supervised by the Belgian Banking & Finance Commission, which also acts as a regulatory authority for approving prospectuses. There is also an international commission of appeal made up of the great and the good, including former heads of European stock exchanges. The market requires 20% of share capital to be publicly held and also sets corporate governance and disclosure requirements, which include quarterly reporting. Accounts have to be stated in accordance with International Accounting Standards or US GAAP, or reconciled to IAS or US GAAP if published according to home state standards.
Companies that are highly organised can get onto the market in a matter of months. The process involves finding a sponsor to bring the company to the market. New entrants must have a minimum of two market-makers, though the average is six and some companies have up to ten. The sponsor may be one of the market-makers.
This isn’t a cheap market. “The cost base is higher than for more local markets because you have to distribute across borders and bring on parties from other countries,” says Andrew Beeson, chief executive of Beeson Gregory and an Easdaq board member. “It’s more like a Nasdaq-type cost structure.” Entry fees are based on market cap, starting at ecu 20,000 (#13,000) for companies capitalised at under ecu 50m (#33.3m). There are additional annual fees and transaction fees on amounts raised. However, cost probably isn’t an issue for Easdaq companies which tend to be a fairly good size: the average market cap exceeds $350m, while Beeson says the minimum should be around the $80m-$100m mark.
Given that UK growth companies have London’s own AIM handy, not to mention Nasdaq if they are really ambitious, the key reason to consider Easdaq is when a company has a broad European business which it seeks to grow further. By turning to Easdaq, companies should get a broader international spread of investors than if they listed on AIM, for example. “The companies that are appropriate to go to Easdaq have sales or services or products that cross borders. They are not local businesses,” stresses Beeson, who is relatively pleased with the way Easdaq has performed in its eighteen-month life. “The performance of the stocks has varied, but overall they have performed extremely well,” he says.
Of the 25 companies on Easdaq at the beginning of March, just three are UK-incorporated. There is strong representation from companies in Belgium, France, Austria and Italy. “We don’t have the presence we would like in Germany yet,” says Easdaq’s spokeswoman, but the mix suggests the market is truly pan-European.
The UK stocks include Dr Solomon’s Group: the anti-virus software company became the first to list on Easdaq in November 1996, having already been listed on Nasdaq. The other two are Debonair, the low-fare European airline, and the Esprit Telecom Group, an international and long-distance telecommunications company and another Nasdaq dual-listing.
Around half of Easdaq’s companies are also listed on Nasdaq, emphasising the similarities between the two markets. Easdaq makes no secret of the fact that it has been targetting Nasdaq-listed companies that may want to “come home”. However, over 90% of the trading volume for the dual-listed companies takes place on the American market, not the European one. Given the youth of Easdaq, this ratio and the market’s liquidity should improve.
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Debonair, which isn’t Nasdaq-listed, raised #25m when it joined Easdaq last July. The move made sense for an operation concerned with the physical crossing of boundaries. Richard Clapson, the airline’s chief financial officer, believes there are a few bumps in the market’s operation which could be usefully smoothed out. For example, Debonair doesn’t have direct access to its new shareholders since shares registered and traded on Easdaq are nominally held in the name of Intersettle, the Swiss-based agency appointed by Easdaq to provide its settlement service. The problem for Debonair is that it can’t even send out an annual report without going through an intermediary. “When you’ve got some good news you want to announce, you want to be able to tell your shareholders,” says Clapson. “At the moment that is difficult.”
The Easdaq requirement that accounts based on UK standards be reconciled to international standards isn’t a problem for Debonair and affects few items. Clapson does have one piece of advice for anyone about to go through an initial public offering: have a reliable number two to handle the day-to-day issues while you look after the flotation. “I’d been warned about the time it would take, but I don’t think anything really prepares you,” he says.
As far as Easdaq is concerned, the market is still in the early stages of development and working hard to boost its appeal. “Our next step in the UK is to build transaction networks for the retail investors,” says Easdaq’s spokeswoman. “We want to make it easier for the retail investor to transact in the market.” There is no point raising Easdaq’s profile too high if investors then get frustrated because the network to conduct deals isn’t there, she explains.
The next year will be an important time for Easdaq. It needs to attract more high-quality companies and establish critical mass before it can really claim to be a serious European equivalent to Nasdaq.
Easdaq: Esprit Telecom Group
Esprit began operations in June 1992 and provides international and long-distance telecommunications services to businesses in 19 major cities in the UK, Netherlands, Spain, France, Germany, Belgium, Italy and Ireland.
Esprit joined Easdaq in February 1997 through an initial public offering (IPO) of 4.75 million American Depositary Shares priced at $12 each, quoted on both Nasdaq and Easdaq. The dual IPO raised $57m. The group has seven market-makers on Easdaq.
Esprit certainly fits Easdaq’s pan-European requirements. Its goal is to provide telecoms services across national borders to a pan-European market. Last November Esprit began the first phase of its pan-European network expansion by starting the deployment of a fully managed dark fibre link between London and Paris.
“One of our missions in life is to be a pan-European company,” says Glenn Manoff, director of communications. “Our motto is ‘The choice of Europe’.” However, for Esprit, Nasdaq was always the first choice stockmarket and, in fact, over 90% of its shares are traded there. “US investors are very educated about telecoms,” says Manoff. The real question for Esprit was which market to choose for the joint Nasdaq listing. AIM was one contender, but lost to Easdaq. “Easdaq had modelled itself as a sort of European Nasdaq and so the concept seemed to fit,” Manoff explains.
“The incremental cost of joining Easdaq wasn’t substantial. There aren’t that many Nasdaq companies that are purely European. If we hadn’t gone on Easdaq people would question whether Easdaq had got it right. If you wrote a profile of a perfect candidate for Easdaq, it would be us.”