PLUS Markets – a solution

Dirk Van Dijl, the inspirational promoter of this website, has advised me that last week’s blog (31.10.11 ‘Few Plus points for PLUS Markets’) received the second highest response rate in the two and a half years history of Enterprise Britain. I received a number of calls and emails from shareholders, market professionals and companies on PLUS Markets.

The overwhelming emotion was one of utter frustration. The management of PLUS Markets Group Plc is poorly rated. Its inability to formulate a strategy which will see the business move back into profitability (or even survive according to several opinions), and its myopic approach to the opinions of others, headed the list of criticisms. During the week there was some buying of the shares and the price rose but caution is still the watchword.

Despite the fact that the management, as said above, will ignore this blog, I am going to suggest to the team at PLUS how they might turn PLUS Markets around.

Simple. Re-position it.

“PLUS Markets is the venue for early stage equity fund-raising. The costs reflect what applicant companies can afford. The high risk involved is a function of company size.”

Nobody wants to mitigate against the current focus on the limiting of investor risk. It is the nature of risk that is the key to this proposal.

Last week I was at a meeting where a London broker quoted £750,000 for a company capitalised at £20m to apply to join AIM without a fund-raising.

PLUS Markets can structure exactly the level of due diligence needed for (say) £250,000.

There will be no difference in the quality of the process.

THE RISK lies in the size of the company. Earlier stage businesses have smaller executive strength, less experience and weaker balance sheets. Their capacity for withstanding setbacks will be less.

This is where the Drury safety-value comes into play. When a company joins PLUS Markets, 20% of the funds raised must be left with the advisers and released against the achieving of stated targets.

One of the main reasons why companies fail is because once the IPO is completed, the net funds are passed to the company and then there is virtually no check on what happens. In fact the only real control is with shareholders and, as the long suffering holders of PLUS Markets shares know, corporate governance is a myth dreamed up to keep committees of MPs occupied.

Having achieved momentum the management at PLUS Markets should then go and see Monsieur Rolet at the London Stock Exchange and suggest that all AIM companies with a capitalisation under £10m should be asked to move to PLUS Markets.

If Mr. Rolet does not share this vision I suggest PLUS Markets offer AIM companies a year’s free membership if they transfer. If the corporate advisers show some initiative anything is possible.

Suddenly PLUS might have 500/600 companies and a surge in new business as companies realise they can reach equity finance at an affordable cost.

Next week I will answer a number of other issues including market liquidity, the adviser structure, news flow and why Hong Kong holds a special secret for PLUS Markets

My plan is viable. It’s a huge ask to change a culture (ie. the polarised thinking about risk) but it can be done. Of course the cheap shot will be that “Drury is suggesting a higher risk market.” The smart thinkers will realise I am offering an exciting opportunity to build a market Britain can be proud of which will serve companies and shareholders alike.

And Dirk Van Dijl will be ecstatic because he set up Enterprise Britain to help the UK’s enterprise culture.

1 comment for “PLUS Markets – a solution

  1. Richard Hoblyn
    7 November, 2011 at 10:57

    Tony

    I think your idea of a 20% escrow shareholders funds account may fall on deaf ears but you are right about several things. The fees gravy train must come to an end. I can see no benefit whatsoever in the NOMINATED ADVISER & NOMINATED BROKER approach that is mainly applicable to AIM. There is still after all these years immense confusion here and a classic doubling up of charges by all concerned. This confusion may indeed be having an impact on corporate governance too as effectively there are 2 seperate firms (not always the case I realise) advising and policing these companies. I agree that there needs to be more connectibility between LSE and Plus and guess what….I suspect that there’s inertia at both ably supported by shackled interruption by FSA that is possibly doing more harm than good. I agree that AIM companies of less than £10m Mkt Cap should be downgraded and a move to Plus may be the answer but without the support of the PCIAM industry it’s a dead duck. Unfortunately the latest FSA suitability rules are getting in the way here and I think this is a terrifying sideshow that could do untold damage to both AIM and Plus companies especially at the lower end which is mainly UK focused. It is my belief that RDR must be halted asap. The doctrine is not conducive to small/micro cap investing especially and anyway what right does any regulator have in reappraising the definition of RISK which is what investing is all about (?). Until this is resolved I can see no focus from Plus or AIM and no possibility of a US style pink sheet or Delta type market evolving for sub-£10m Mkt Cap businesses. My plan would encompass a one-stop shop providing the Corporate Finance specialisation feeding into a minimum 2 broking firms providing retail investment and after market liquidity. This should be a pre-requisite for all small cap stocks anyway regardless of size but the lack of vision, understanding and expertise at LSE, FSA, Plus et al is getting in the way of common sense.

    Where have we heard that before?

    Richard.

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