Thursday 04 March 1999
ANOTHER DAY and another small-cap company turns its back on the stock market. Bill Ainscough is taking Wainhomes private with the help of Royal Bank of Scotland, leaving behind the now familiar trail of complaints about short-termism, illiquid stocks and inability to raise capital.
In Mr Ainscough's case, however, there is a kicker, and a big one at that. As part of the buy-out deal, his share of the company will rise from 23 per cent to 71 per cent because of the way BoS is loading the business up with debt.
After servicing that debt - nowadays a much cheaper business because of the fall in long-term interest rates - Mr Ainscough will be left with a pounds 5m share of profits each year, assuming the company keeps up its present level of earnings. In these days of full disclosure and corporate correctness, that is the kind of take-home pay he could only have dreamt of had Wainhomes kept its public quote.
Given that life as a quoted company brought with it all the tiresome obligations of a listing and none of the advantages - which are principally access to capital - the choice must have been an easy one.
The example of Wainhomes highlights a wider trend. Smaller companies are starting to leave the market in their droves. Some of the blame for this phenomenon lies with the big investment institutions, who have turned against smaller companies like Wainhomes, which in turn makes their shares underperform, which in turn deters people from buying them.
A vicious circle rules which is preventing the small companies of today becoming the big ones of tomorrow and it is a serious problem. In a report published today, Brian Basham and Craig Pickering of Equity Development suggest a solution - provide individual investors with the same tax breaks as the big institutions.
Since small investors buy shares in small companies, this would kill two birds with one stone. Shares in these companies would become more liquid, making it easier to raise capital, while the investors themselves would be helped to build up a pension pot ready for retirement.
Gordon Brown has hinted that next week's Budget will contain a sprinkling of measures to boost enterprise. But this may be a tax break too far for the Chancellor.
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