CapitalQuarter – Autumn 2022
Around a quarter of companies listed in the UK are dual listed. So what are the advantages and what is involved?
Dual listings in the US market have become more popular in recent years. So have direct IPOs and IPOs via a special purpose acquisition company (de-SPAC) in the US market.
Listing in the US market can offer advantages that look very attractive at first sight. But it also has underlying complexities that have to be navigated and understood. These include listing criteria, the regulatory environment, shareholding structure, ongoing requirements and costs.
A few of our clients are already dual listed in the UK and the US. Among them are Altus Strategies Plc (AIM and OTCQX), Argo Blockchain (LSE main market and Nasdaq), Bluejay Mining Plc (AIM and OTCQX), and Renalytix AI Plc (AIM and Nasdaq). Others have dual listing in progress.
How can your company benefit?
The process of a new listing in itself can be good publicity for a company. This applies whether it’s done with a capital raise, or through an introduction without the associated raise.
Listing in the US market widens the potential pool of capital available to companies, a particular advantage to growing enterprises. Companies can gain exposure to US markets via US-listed American Depository Receipt (ADR) for example, maximising their visibility there, as well as in their local market.
A dual listing extends the trading period of stocks. That’s because local trading hours provide more trading time overall in a 24-hour period. This in effect extends liquidity, but also allows the company to respond to news and events more efficiently in a global market.
A local knowledge gap can be addressed, and different markets tapped into at different times. Valuation anomalies can be ironed out. And greater liquidity and wider scrutiny means mispricing can be smoothed out.
Arbitrage opportunities for traders and hedge funds rarely last long between markets, as they tend to exploit the more limited liquidity and understanding. In times of lower volume and higher volatility, as we have now, the efficiency of a dual listing could be an advantage.
Australian mining companies are a good example of this, many having benefitted from dual listing on both the European market and US market.
Also, companies with the simultaneous US exposure can benefit from the flexibility to shift their main listing over time. One example is Ferguson Plc, a UK building materials conglomerate refocussed its business and moved its listing to the US in May 2022, realising a higher valuation alongside its US peers.
London has become a focus of this dual structure. It has the advantage of sitting in between time zones and offers access to many specialists, smaller company investors and private wealth managers.
What are the complexities and challenges?
Different jurisdictions, indices and regulators mean different accounting, reporting requirements and regulations, which demand more time and resource.
Harmonising these different and complex issues for consistency across markets and listings is a challenge in itself. It is vital that companies are able to provide appropriate, consistent to both markets and that anomalies do not appear.
Cross market communication is therefore very important, both inside and outside the companies; comprehensive understanding of these issues and their repercussions is key.
As these factors demand more management time, the companies would be expected to have local representation, that means direct residency for each market, all of which requires further co-ordination.
Not only that, but they’d also need professional advisors in each market. They, again, would need to be co-ordinated to deliver a consistent message and inform on local investor or stakeholder issues and requirements.
So the benefits for all stakeholders should be weighed up against the demands of complexity, double oversight and co-ordination, which may seem onerous and inevitably add up to greater expense. Choosing the right partners and advisors from the start can reduce the burden and, ultimately, the expense because the roadmap will then be well understood.
PKF Littlejohn’s expertise and experience on a range of international markets such as LSE, AIM, NASDAQ, and OTCQX can lighten the load for companies following this route. We bring together the necessary understanding of the complexities and issues of each market and, moreover, those issues in combination with any duality.
The dual listing process
Application for dual listing to the US markets usually has similar requirements to those in a regular listing in the UK, with additional US market technicalities.
The general application process on any of the principal exchanges will involve appointing an underwriter (investment bank), and other advisers including lawyers, brokers and accountants.
The company will need to submit documents to the stock exchange including listing application, financial statements, legal opinion, SEC registration form, corporate information, relevant agreements and memorandum, and comfort letters from the advisors, among others. It must also file a registration statement, which is the equivalent of the prospectus for the LSE main market or the admission document for AIM.
De-SPAC has a similar process. The main difference, though, is that there is an element of duplication because there is a listed entity already in existence and so there are often more professional advisors involved.
The whole procedure usually takes at least five months. The key stages involve drafting the prospectus, initial filing with the SEC and the stock exchanges, addressing comments from the SEC and the stock exchanges, auditors working on financial statements, ongoing legal work, due diligence by underwriters, preparation of marketing documents and/or a road show, investor presentation, and pricing and closing.
If you would like further guidance on any issues raised in this article, please contact Linlin Jin.
