Fast movers want to go to America

Neil Baker finds that the City is ill serving technology firms

Dr Tim Cooke was popping the champagne corks when his company, Intelligent Environments, floated on London's one-year-old Alternative Investment Market last week. But, like many high technology bosses, he would rather be celebrating a debut on the 25-year veteran for promoting fast-growing companies: New York's Nasdaq exchange.

"We talked to a lot of brokers in the US but they said that we are still too small for Nasdaq," says Cooke. "But it is still an option for the future."

The fact is that most technology companies still see Nasdaq as their natural home. Why don't they feel at home in London? Easy. Higher valuations in New York, better expertise among brokers and greater liquidity than on this side of the Atlantic.

"When an entrepreneur takes his company public, he wants to feel that people understand it," says analyst Keith Woolcock ofbroker Merrill Lynch. "It's hard to get that comprehension without some degree of specialisation and we haven't got it in the London market. It's a tragedy that we haven't got a Nasdaq-type structure - some place you can go where there are other technology companies. It's a lost investment opportunity.

"We need to raise our understanding so that valuations are more realistic - whether that means valuing stocks upwards or downwards. We need to increase our expertise in analysing technology. In America you have far more specialisation: people spend their whole lives looking at disk drive manufacturers. Because we don't have that wealth of companies, people have had to generalise."

Nasdaq was founded in 1971 and lists more than 5,000 firms, valued at $1.2 trillion at the end of 1995. UK firms quoted there include the highly successful Madge Networks, based in a Buckinghamshire farmhouse and run by Robert Madge, one of the UK's richest men with a fortune of some pounds 400m.

Scottish faulty chip repairer Memory Corporation, which was once AIM's biggest firm, illustrates the perils for hi-tech firms in the fledgling market. Its shares have slumped from a sky-high US-style rating this year after a string of product delays, though it insists it has a viable product. Brokers blame the company's disappointing performance to date for the collapse but admit lack of understanding is a major factor following the initial hype in the market. Its private Newcastle-based rival is now looking at Nasdaq as its first port of call.

Patrick Spencer, head of international sales at the new London office of California brokers Hambrecht & Quist, says there is still a steep learning curve. "A lot of UK and European investors have ignored technology companies," he says. "There hasn't hitherto been the interest, the money or the education to invest, but that will change."

Spencer believes this change will come when the new European rival to Nasdaq, imaginatively called Easdaq, opens later this year. The European Association of Securities Dealers Automated Quotation system is designed to cater primarily for European high-growth companies. As the brainchild of the European venture capital industry, it is aimed at companies with large profit potential.

Hambrecht & Quist, along with other US brokers, has revamped European operations ahead of the Easdaq launch because it anticipates a lot of interest from US investors. But it remains to be seen whether companies which have already left Europe can be enticed back.

"The biggest computer networking market in the world is the US and more importantly the technology stocks are predominantly on Nasdaq ... so that is the place for us to be," says Madge Networks' Michael Beadsmoore.

Madge floated on Nasdaq in 1993 because it had difficulty finding funding in the UK. The company now employs 2,100 worldwide and had sales of $427m last year. "It was easier to raise the money and get interest in the US," says Beadsmoore. "It was the natural thing to do."

One of the biggest problems is the way companies on the London Stock Exchange are classified, saysWoolcock. "Is it really sensible to have companies like Azlan and Ideal Hardware, distributors of hi-tech products, compared to motor distributors like Cowie?

"American fund managers find it curious to see software companies in the same sub-sector as BET, Rentokil, Sketchley, Chubb Security and ADT. The politest thing you can say about it is that it is slightly eccentric."

According to Ben Tompkins, a principal with information technology merger specialists Broadview Associates, the AIM market has been partly successful so far for hi-tech firms because at least it has given them a way to raise money. But what it has not given is liquidity.

"European technology companies looking for investment still get sold, rather than float," he explains. According to research from Broadview, a fifth of those buyers come from the US.

Tompkins cites Leeds-based software house BACG. It had a turnover of pounds 24m last year, is expecting pounds 36m this year and includes Somerfield, Gateway and K-Mart as clients. It wanted to raise pounds 10m to expand and turned to a US investor, EM Warburg Pincus. It came up with $35m - the largest single investment in an IT company in Europe, according to Broadview. The company's advisers say it is too early to float now, but when it's ready it will be going to Nasdaq.

But at the end of the day, despite the drawbacks, Cooke of Intelligent Environments is still happy to be on AIM. "I think it is a matter of how you tell the story," he says. "For some investors it goes over their heads but we have had a good reception."

Start your day with The Independent, sign up for daily news emails
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins wins the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Jay Z has placed a bet on streaming being the future for music and videos
Arts and Entertainment
tvPoldark, TV review
(David Sandison)
newsHow living on a houseboat meant I didn't officially 'exist'
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor