The allure of overseas markets
Going abroad to go public attracts local firms
For an increasing number of U.S. companies that want to go public, the pressing question has become where to do so. For at least six Massachusetts companies, the answer is, "not here."
That's because U.S. companies want a better deal, and foreign exchanges are offering one.
Foreign exchanges can also make a U.S. company feel like a big fish in a small pond without any unwanted and expensive regulatory attention.
Protonex Technology Corp. of Southborough, which makes fuel cells, went public on the London Stock Exchange's junior market, AIM, in July 2006. Saving money was a leading factor.
Listing on Nasdaq would have cost Protonex $2 million to $3 million annually, said CEO Scott Pearson. Instead, the company pays half a million dollars a year to be listed on AIM. And costs in the U.S. would have been twofold: in addition to listing and accounting fees, complying with regulations takes time and manpower which mean more dollar signs.
Scott Pearson, CEO of Protonex Technology Corp. of Southborough.Big fish, small pond
In the last three years, other Massachusetts companies like World Energy Solutions in Worcester, Aqua Bounty Technologies of Waltham, Elcom International of Norwood, Burst Media Corporation of Burlington and Redline Communications of Boston have also gone public abroad.
While the steep domestic price tag has American firms running, once there, companies discover other compelling reasons to enter foreign public markets. Investor awareness of niche markets, greater access to cash, and a comparable peer group create a more suitable environment.
"We did not want to be a little fish in a big pond," said Protonex's Pearson. "The average market cap on Nasdaq is about $1 billion. It's no longer the small company's exchange."
With a market cap of $110 million, Protonex is well above the average AIM size, an advantageous position among its peers.
By the end of December 2006, the London Stock Exchange had 79 U.S. listings. TSX, the third largest in North America by market capitalization, has 113 U.S. listings, including World Energy Solutions of Worcester.
Trading on TSX, which is mainly comprised of energy and resource markets, made sense for the energy brokerage firm. COO Phil Adams said the resource-friendly environment made it easier for investors to understand and value the company. Having compared London's AIM and TSX, the company also felt TSX could potentially raise more money in follow-on rounds after its IPO.
No panacea
However, going abroad to go public did not provide World Energy any relief from the cost of Sarbanes-Oxley. Regulatory expenses are actually higher for the company because it has to comply with both U.S. and Canadian regulatory commissions.
Despite the costs, Adams said that World Energy would not have been able to gain the investor attention to go out on a public market in the U.S. Instead, it accomplished its growth strategy, gained a better valuation, and even tapped U.S. investors by listing somewhere else.
Local companies are increasingly listing on foreign public markets, like the Toronto Stock Exchange.
For Aqua Bounty Technologies, a biotech firm based in Waltham, it was all about the right fit and a warmer reception. "In New York you get fifteen minutes and you're out the door," said Elliot Entis, CEO.
Already a publicly traded company, Elcom International of Norwood raised $2.5 million through an issue of 73,230,009 new common stock on AIM in February 2007. The money allowed the company to meet operational expenses and proceed with new contracts that required stronger balance sheet performance, said President and CEO John Halnen. Elcom looked to AIM after it was required to delist from Nasdaq in 2003.
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