Companies are looking across the Atlantic for listings as economic and market conditions stifle growth prospects at home. But cross-border listings offer another path, says Jason Paltrowitz of OTC Markets Group.
In 1927, JP Morgan introduced the first American depository receipt (ADR) for Selfridges on the New York Curb Exchange. Since then, America’s stock exchanges have, in the eyes of many, become the gold standard of international capital markets, with companies of all sectors and sizes pursuing listings on NYSE and Nasdaq every year.
The allure of a US listing makes sense. Offering huge pools of investment capital, the US has the most robust ecosystem of diverse investors in the world, ranging from retail investors and family offices to large institutions. US markets and the rich sources of liquidity available constitute an important platform to support the growth aspirations of many international companies.
At the same time, the looming threat of recession and persistently choppy global markets continue to place downward pressure on company valuations. These are also conditions that are stifling access to capital and liquidity and, therefore, growth prospects in international markets. Companies are growing restless as a result – and looking across the Atlantic for solutions.
This is creating an environment of deep introspection for aspirational, growing companies. To capitalise on the favourable conditions in the US means deserting their domestic listing, arguably adding to the negative sentiment that continues to surround some global exchanges. However, it’s a choice many are making or considering.
Changing of the stock exchange guardWith interest in the US on a steady upward trajectory, the impact elsewhere is clear to see. Just this year, the UK has seen a number of high-profile examples of companies succumbing to the negative sentiment surrounding the London Stock Exchange and shunning the UK to pursue a listing in the US instead. London has only seen two IPOs this year, compared with 30 in New York.
With an unhelpful underlying narrative regarding the less dynamic characteristics of companies listed in the UK versus the US, London is falling further down the rankings of attractive listing destinations.
Prohibitive costsHowever, for companies that deem the opportunities in the US to be more attractive than those in their home market, the process of listing overseas is often expensive and time-intensive. There are regulatory hoops to jump through at every turn, such as Sarbanes-Oxley compliance, SEC registration reconciling to US GAAP and increased D&O insurance.
For many ambitious European companies (even those with mega-cap status), the costs of listing on a US exchange, combined with the extensive regulatory, legal and compliance risks and requirements associated with the process, remain a significant barrier. Average costs can reach $3 million a year. Clearly, this outweighs many of the upsides associated with the US market.
Companies may feel they have only one option: departing their domestic stock market entirely. There is another way.
The best of both worldsHundreds of global companies from many of the most highly-recognised global exchanges already access the much sought-after liquidity the US capital markets provide by cross-trading on markets like OTCQX, our market for multinational companies with listings on another qualified international stock market.
By cross-trading and utilising the foreign private issuer exemption, companies can gain US access at far lower cost, and with far fewer administrative requirements while remaining fully compliant with the high standard of regulatory expectations in the US. Companies, therefore, achieve visibility and tradability in the US, enabling them to grow their shareholder base and access growth capital.
Most critically, this path means domestic exchanges remain well-populated with quality companies, offering opportunities for local investors while building a more robust secondary market and bridging the valuation gap. Companies become national champions.
“Home or away” is not the only debate. It’s time issuers recognise they can have the best of both worlds.
*Jason Paltrowitz is director, corporate services, at OTC Markets Group.
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