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Page last updated
February 15, 2003

 

 

I

Why Consider a US Stock Market Listing?

www.nasdaqeurope.com

Investment is rapidly becoming a cross-border exercise with more and more companies from the rapidly growing emerging nations looking to raise capital in one of the world's largest financial market- the US. Charles Balfour, SVP of Nasdaq International considers some of the reasons why?

Non-US companies are attracted to the US for a number of reasons - access to one of the deepest pools of capital in the world, the ability to achieve a lower cost of capital and the ability to raise their profile with US investors. The only way for non-US corporates to tap this vast source of capital is to list on one of the U.S. stock exchanges, (primarily The Nasdaq Stock Market(r), New York Stock Exchange and American Stock Exchange).

To a large extent, why non-US companies choose to list on a US market will dictate how they list. If a company has not yet listed in its home country, then it may choose to seek an IPO in the US. Otherwise, companies can seek a secondary offering either issuing new stock or simply listing existing shares. If a company is primarily seeking to raise cash, it will almost certainly choose to issue new stock. On the other hand, companies looking to enhance employee benefits by offering US employees the option of trading company stocks on the US markets, will most likely choose to list existing shares.

In general, a US listing brings two types of appeal to non-US companies: capital and commercial, and can help companies succeed in doing one or more of the following:

A. Raise capital in one of the largest pools of capital in the world.

B. Improve valuation, companies benefit by taking their product to where investors understand their story. Depending on the industry, US investors may be more familiar with and value a company or a product more than investors in the company's country of origin, resulting in a better valuation for the company's stock price.

C. Diversify the shareholder base.

D. Increase visibility. Listing on a US market is a good way to raise a non-US company's profile - both in the US and in its home country. In fact, obtaining a US listing can communicate to investors in the home country that the company "has made it". Access to a concentrated number of US research analysts can also increase a non-US company's marketing communications message.

E. Enable US employees to invest in the parent company. A US listing can help support a company incentive programme for US employees by providing a liquid market in the US for its shares. This may also help the company by attracting more qualified employees.

F. Using US shares for acquisitions. Using US shares in place of currency provides an alternative, cash-free financing option for acquisitions. An offer of US shares may serve to engender loyalty in the newly acquired company and provide incentive to ensure the success of the venture.

Listing Options
Non-US companies have several options when deciding which class of stock to list in the US. The two most common choices are American Depositary Receipts (ADRs) and ordinary shares. The class of stock selected is entirely up to the company and its advisors, the regulations and fees vary for both options. More details on the differences can be found in Nasdaq's 'Guide to Going Public'.

Selecting a Stock Market
Not all stock markets are the same, nor is one stock market appropriate for all types of companies. Markets vary by listing requirements (to begin trading) and maintenance standards (to continue trading), as well as by their rules and regulations governing trade execution, reporting and settlement. Stock markets also vary according to market structure and trading mechanisms.

Factors to Consider
When companies seek to grow by raising capital through a public offering (initial or secondary) in the US, selecting the right securities market is critical. The decision should be given much thought, taking into account the company's responsibilities to its future shareholders and the board of directors' and management's potential ability to fulfill them.

That said, however, there is no 'rule of thumb' or consensus on selecting the right fit when choosing a market place. Factors for consideration might include industry analysis, earnings and revenue growth rates, spread, liquidity, trading volume, public float and other issues. For companies that have already gone public, shareholder composition or peer evaluations may be factors.

Before listing, companies should look carefully to evaluate which market:

A. Offers the greatest liquidity and depth of market for the company's securities

B. Brings added value and visibility to the company and its shareholders - beyond providing a place to trade

C. Offers the most innovative technologies and services

D. Shows leadership and is positioned for global business

The Nasdaq Option
The Nasdaq Stock Market(r) was the world's first electronic stock market. Today, Nasdaq is the fastest growing stock market in the US, listing over four and a half thousand of the world's most innovative companies, and more non-US companies than any other US market. Companies like Alcatel Optronics, Asia Global Crossing, Autonomy, Bookham Technologies, Havas Advertising, Marconi, Regus plc, Sema Group and 360 Networks all saw the benefit of a Nasdaq listing in 2000.

Nasdaq now trades more shares per day and with a greater dollar volume of trades than any other US equity market. In 2000 Nasdaq listed more non-US IPOs than any other US market. Between 1991 and 2000 listings on The Nasdaq Stock Market raised $227.9 billion for 4,531 Initial Public Offerings and $269.5 billion for 2,986 Secondary Offerings.

 


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