Calling Young Companies On The Way Up
For years, Pietro Pozzobon visited America and looked with envy upon entrepreneurs who funded their companies' growth on the NASDAQ. Startups in Italy needed that kind of market, Pozzobon reasoned. Now they have one. And when Italy's Nuovo Mercato opened on June 17, Pozzobon was the first to launch an initial public offering--900,000 shares in Opengate, a distributor of information-technology products, at $34 each. Within a week, the stock was up 25%. "It used to be that the only way to raise capital was to go to the bank," says the 55-year-old former engineer, who founded Opengate last October in the city of Varese. "Now, companies like mine can finally go to the stock market."
NASDAQ-style trading promises a powerful boost for entrepreneurship in Italy. Twelve companies so far, from information technology startups to telecom and biotech outfits, plan to list this year. Created by Milan's Borsa Italiana, the Nuovo Mercato is the latest of Europe's markets for high-growth companies, known as Euro.NMs. As such, it's likely to play a key role in building an equity culture in Italy, where stock trading has long been dominated by such giants as Fiat. The Nuovo Mercato will gain further in reach as its trading is integrated with the other four Euro.NMs now operating. "Given Italy's many small and medium-size companies," notes David Freddi, an equities analyst at Standard & Poor's Marketscope, "this market has the potential to explode."
ALL AFLOAT. That's good news to Tiscali, a telecom startup that intends to issue an IPO soon. Launched in Sardinia two years ago, Tiscali is Italy's first provider of free Internet service. Its fixed-rate phone service already boasts 200,000 subscribers. Tiscali wants to finance the fiber optics it needs to expand into the rest of Europe and the U.S. "Tiscali is a startup, just as the Nuovo Mercato is," says Chief Executive Renato Soru. "I'm glad we can be part of a market in Italy."
So is Tecnodiffusione Italia, a retailer of computers, cell phones, and electronic accessories near Pisa. Sales have expanded to $85 million since it began four years ago. It's now thinking about floating up to 49% of its shares to add to its 117 outlets. Also among the companies preparing to go public: Gandalf Airlines, a Bergamo-based carrier that began service to five European cities in April.
A mix of small, young companies is just what the Borsa Italiana was aiming for when it launched the Nuovo Mercato. It has made some listing requirements easier than on the main exchange. There is no minimum in revenues and, for the time being, no listing fee. While flotations must make up at least 20% of a company's shares, the issues can amount to as little as $2.6 million. At the same time, disclosure requirements meet world standards to attract institutional investors. Listed companies must report revenues quarterly rather than annually, as on the main exchange. Says Massimo Capuano, CEO of the Borsa Italiana: "The Nuovo Mercato is intended for companies with higher risk profiles than on the main exchange."
NEW NICHE. The benefits of listing will grow exponentially as the Nuovo Mercato is drawn together with Euro.NMs in Paris, Frankfurt, Brussels, and elsewhere. While none of these exchanges is more than three years old, their combined market capitalization, now $59 billion, has grown 160% since the start of 1998. Together, they boast 250 listings. "The objective," says Capuano, "is to create a network that will attract liquidity through cross-border trading."
If the other Euro.NMs are any guide, the Nuovo Mercato will also stimulate venture capital. Direct investors are far more likely to back a company if they know they can cash out and move on once the investment matures. "The new market opens a niche for venture capitalists that the main exchange simply didn't represent," says Paolo Bianco, chief of the Italy desk in the New York office of Intermobiliare, a Milan-based securities house.
At the white marble building that houses Milan's markets, officials say they have researched more than 250 Italian companies that could list on the Nuovo Mercato. Bringing them in will take time: A year from now, Capuano says, he'd be happy with 20 listings. However gradually the Nuovo Mercato expands, investors are sure to watch it closely. These days, they're looking for the kind of thrill only a small-cap market can deliver.
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