Mark I'Anson, founder of Integrated Micro Products in the town of Consett in northern England, knew exactly where he wanted to list his fast-growing computer company when he decided to go public this year. He shunned both the London Stock Exchange and its over-the-counter offspring, the Unlisted Securities Market (USM). Instead, he opted to list on NASDAQ, the traditional market for U.S. growth companies.
IMP, which makes computers that provide call-waiting services, raised $16 million in a March issue of American depositary receipts, and I'Anson, 39, couldn't be happier. "NASDAQ and the U.S. investment community just understand our sort of company better" than closer-to-home alternatives, he says. "The London Stock Exchange doesn't have any idea what the needs of smaller companies are." So disillusioned have small European companies become with costly and inefficient local markets that about 50 others have taken the same route across the Atlantic (table).
KEY WEAKNESS. The flight of equity issuers points out a major flaw in Europe's single economic market: the absence of an organized capital market for emerging companies. Many European governments feel that the lack of such a market is a key weakness of the European Union. Starved for capital, many small companies fail. That stifles job creation and makes Europe less competitive in computers, electronics, telecommunications, and other high-tech industries. "In Europe, we have virtually missed out on the whole [small-company] sector," says Joseph B. Peeters, managing director of Dutch-based Capricorn Venture Partners.
NASDAQ, which opened its London office in 1987 and has since doubled staff to 10, is pushing hard to sign up European companies. Ellen Hipschman, NASDAQ's international marketing director, says there's "a high level of interest" in listing--and that includes Eastern European companies. But NASDAQ officials in the U.S. note that they're not trying to woo companies away from European stock markets but only attempting to get a company's U.S. listing.
Top EU officials, some national stock exchanges, and venture capitalists are trying to put together a Europewide stock market for growth companies. With backing from the EU, Peeters hopes to draft a proposal by July and to have a final plan ready by November. He estimates that 3,000 to 5,000 of the 15,000 venture-backed companies in Europe, with $5 billion in capital behind them, are candidates for listing. "Anything that helps the expansion of small companies, which are big employers, is important in helping to solve Europe's high unemployment problem," says one EU official.
Some European bourses, principally those in France, Spain, and Denmark, support the idea. The Paris Bourse sees such an exchange as part of a solution to the problems of its second-tier and over-the-counter markets. Both have been battered by recession and are suffering from the same lack of interest from investors and brokers as London's USM. "We are very keen that [the new exchange] should have a strong European dimension," says Dominique Le Blanc, deputy general manager of the Paris Bourse. The Barcelona Stock Exchange and the Copenhagen Stock Exchange are also interested in a Europewide small-company market.
HALFWAY HOUSE. But creating a Euro-NASDAQ isn't so easy. Peeters must knit together the interests of Europe's venture capitalists, investment bankers, and fund managers, plus accommodate the wishes of interested stock exchanges.
Consider what happened to the largest of the existing secondary markets, USM, which the LSE plans to close by 1996. The exchange created the USM in 1980 as a halfway house for small companies that couldn't meet the strict requirements, such as a market capitalization of at least $1 million, for a big-board listing. In 1989, the USM was a booming market, with 420 quoted companies and a total market capitalization of $13.5 billion. But recession, neglect by LSE officials, and loose oversight
and listing requirements caused brokers and investors to lose interest.
Today, the USM has about 250 companies and a market capitalization of just $9 billion. The EU will have to ponder the lesson in London's disappointment as it figures out how to renew interest in small-company investing--and keep more listings from crossing the Atlantic.
NASDAQ IS LURING EUROPEAN COMPANIES Company/Country Industry Price per share* DANKA BUSINESS SYSTEMS (Britain) Office equipment $44.75 ETHICAL HOLDINGS (Britain) Pharmaceuticals 7.25 FUTUREMEDIA (Britain) Training programs 5.25 INTEGRATED MICRO PRODUCTS (Britain) Phone systems 6.75 OLICOM (Denmark) Computer networking 9.50 FUEL-TECH (Netherlands) Pollution control 10.25 HEIDEMIJ (Netherlands) Engineering 10.75 PETROLEUM GEO-SERVICES (Norway) Seismic data 13.63 *June 14 DATA: NASDAQ INTERNATIONAL LTD., BLOOMBERG FINANCIAL MARKETS