City Comment: Is there any point in staffing companies being publicly listed?
31 August 2012
The recent decision by Morson to delist its shares from the stock market, which formally took place on 8 August, brings into focus the value of being a publicly listed company (PLC) in the recruitment sector.
Fri, 31 Aug 2012 | By Tim Evans, managing director of Boxington Corporate Finance
The recent decision by Morson to delist its shares from the stock market, which formally took place on 8 August, brings into focus the value of being a publicly listed company (PLC) in the recruitment sector.
Firstly, there are undoubtedly a number of mid to large cap recruiters for which PLC status is a fruitful one, allowing them to raise new equity capital and provide share liquidity for shareholders, while supplying extra clout in business development and employee attraction. Here, the likes of Hays, SThree, Adecco, Randstad, Synergie, Chandler Macleod and CDI Corp all spring to mind.It is instead the small cap end of the stock market (particularly where market caps are £15-20m or below) where the merits and demerits of being a quoted PLC, relative to being a private company, are more contested.
At this end of the market in the UK there are a good number of recruitment firms, some of which can be at times somewhat angst-ridden over their PLC status and its worthiness.
This is often because, having floated as PLCs, access to further equity capital proves to be a chimera. Equity brokers, who first persuade businesses onto the market, switch focus on to the next flotation, and institutional investors lose interest unless growth is exceptional and sustained (while so often in recruitment it is a case of one or the other but rarely both).
Regarding any benefit of share liquidity, shares in small cap PLCs are often thinly traded, with the result that any selling of shares can have a disproportionately negative effect on the share price.
This is even more pronounced when shares are being sold by management (who usually hold most of the employee shares) as regarded by the market as a vote of low confidence from company insiders. And of course there is the well-known cost and time involved in maintaining PLC status by reporting regularly to City investors and regulators.
Why therefore do so many small cap recruiters persevere with their PLC status? In simple terms, this is often because once companies are listed on a stock market, it is quite difficult in practice for them to find someone with the money to delist them off the market.
Trade buyers are frequently put off by the uncertainty and complexity of buying a quoted PLC through an ‘open offer’ (compared to the simpler process of agreeing a deal for a private company with an owner).
As for private equity [PE] buyers, many have moved away from investing in small cap businesses, creating the UK’s much documented ‘equity funding gap’. Additionally, Private Equity’s costs of investing − ie. equity and debt arrangement charges, due diligence fees, legal fees and brokerage fees − are principally fixed costs and therefore prove prohibitively expensive when it comes to small cap PLC investment opportunities.
The final question is why some small recruitment companies still aspire to floating on equity markets. In the minds of the decision-makers involved, the answer can be multi-layered and complex; from misunderstandings over the realities and limitations of PLC status for small recruitment companies, low awareness of alternative funding options, over-zealous salesmanship by equity brokers, and, even in 2012, sometimes a halcyon sense of the reputational standing that being a PLC might still bring.
The recent decision by Morson to delist its shares from the stock market, which formally took place on 8 August, brings into focus the value of being a publicly listed company (PLC) in the recruitment sector.
Firstly, there are undoubtedly a number of mid to large cap recruiters for which PLC status is a fruitful one, allowing them to raise new equity capital and provide share liquidity for shareholders, while supplying extra clout in business development and employee attraction. Here, the likes of Hays, SThree, Adecco, Randstad, Synergie, Chandler Macleod and CDI Corp all spring to mind.It is instead the small cap end of the stock market (particularly where market caps are £15-20m or below) where the merits and demerits of being a quoted PLC, relative to being a private company, are more contested.
At this end of the market in the UK there are a good number of recruitment firms, some of which can be at times somewhat angst-ridden over their PLC status and its worthiness.
This is often because, having floated as PLCs, access to further equity capital proves to be a chimera. Equity brokers, who first persuade businesses onto the market, switch focus on to the next flotation, and institutional investors lose interest unless growth is exceptional and sustained (while so often in recruitment it is a case of one or the other but rarely both).
Regarding any benefit of share liquidity, shares in small cap PLCs are often thinly traded, with the result that any selling of shares can have a disproportionately negative effect on the share price.
This is even more pronounced when shares are being sold by management (who usually hold most of the employee shares) as regarded by the market as a vote of low confidence from company insiders. And of course there is the well-known cost and time involved in maintaining PLC status by reporting regularly to City investors and regulators.
Why therefore do so many small cap recruiters persevere with their PLC status? In simple terms, this is often because once companies are listed on a stock market, it is quite difficult in practice for them to find someone with the money to delist them off the market.
Trade buyers are frequently put off by the uncertainty and complexity of buying a quoted PLC through an ‘open offer’ (compared to the simpler process of agreeing a deal for a private company with an owner).
As for private equity [PE] buyers, many have moved away from investing in small cap businesses, creating the UK’s much documented ‘equity funding gap’. Additionally, Private Equity’s costs of investing − ie. equity and debt arrangement charges, due diligence fees, legal fees and brokerage fees − are principally fixed costs and therefore prove prohibitively expensive when it comes to small cap PLC investment opportunities.
The final question is why some small recruitment companies still aspire to floating on equity markets. In the minds of the decision-makers involved, the answer can be multi-layered and complex; from misunderstandings over the realities and limitations of PLC status for small recruitment companies, low awareness of alternative funding options, over-zealous salesmanship by equity brokers, and, even in 2012, sometimes a halcyon sense of the reputational standing that being a PLC might still bring.
Comments
Graham Palfery-Smith, 1 Sep 2012, 10:58
Good article Tim!
