Capitalise on the markets

A listing on European stock market Easdaq could be a fast track to growth for Irish companies, writes Gerard Halpenny. Gerard Halpenny is a partner at William Fry.

In the past three years a number of Irish companies, particularly those in the field of technology, have gone public by way of initial public offerings (IPOs) on the Nasdaq market in New York.

Nasdaq offers Irish companies the availability of significant investor funding and a very healthy appetite for developing companies in the technology sector.

Since the start of last year IONA Technologies, Esat Telecom Group and Ryanair have all followed this route. Subsequently, IONA Technologies acquired a listing on the Irish stock exchange and Ryanair obtained a simultaneous quote on the Irish stock exchange and Nasdaq.

However, Esat Telecom followed a route never before taken by an Irish company with a dual listing on Nasdaq and Easdaq and remains the only Irish company whose shares are traded on Easdaq. It seems likely that more will follow, particularly those companies looking towards Nasdaq, but not an Irish stock exchange listing.

Easdaq was established in 1996 as a screen-based securities market modelled mainly on, and sharing similarities with, the Nasdaq market.

It represents itself as the pan-European stock market. At the start of April 1998, 26 companies had their shares traded on Easdaq and 12 of those (including Esat) were also traded on Nasdaq.

On the basis of market capitalisation there is a heavy preponderance of technology companies. Telecommunications, software and electronics companies make up in excess of 75 per cent of the entire market capitalisation of the companies on Easdaq.

One of the major attractions of Easdaq for a company considering an IPO on Nasdaq is the similarity of the rules for trading on both markets. Any offering document prepared in connection with a Nasdaq IPO will usually be capable of being adapted and/or supplemented to meet the requirements of Easdaq with little difficulty.

In addition, the admission procedures themselves are relatively straightforward and it is unlikely that a company which has met the various requirements of Nasdaq will fail to meet those of Easdaq. For this reason, Easdaq is likely to have greater appeal for companies seeking a quotation on Nasdaq.

By contrast, for Irish companies seeking a listing on the Irish stock exchange, the differing requirements of the Irish stock exchange and Easdaq may cause difficulty. Some of the requirements for admission to Easdaq may be quite stringent when compared to the requirements of the Irish stock exchange.

Conversely, some companies which are in a position to obtain a quotation on Easdaq may not satisfy the criteria for admission to listing in Dublin. In particular, some of the Irish stock exchange's continuing obligations and class test rules for transactions (which are similar to those of the London stock exchange) can be problematical for high growth companies in the technology sector.

This is mainly because many of those companies will be incurring very substantial losses in their development phase. For this reason, a dual Irish stock exchange/Easdaq quotation is not likely to be a very popular option for Irish companies.

In the financial climate which prevailed at the time in the Irish and European markets, neither IONA nor Esat would have been able to raise the kind of money which was available to them in their various offerings in the US.

However, the tide appears to be changing somewhat, with a definite increase in the appetite of Irish institutional investors for the type of Irish companies now listed on Nasdaq.

Recent experience has also shown that Irish and European investors may be more prepared to hold stakes in such companies as long-term investments, adding an element of stability.

For those companies who are in a position to obtain a listing on the Irish stock exchange, the added obligations for compliance with Easdaq requirements, coupled with the limited benefits of such a dual quotation, are likely to militate against Easdaq.

However, if the company is undertaking an IPO on Nasdaq but not on the Irish stock exchange, an Easdaq quotation may well be attractive.

Such a quotation will expose the company's shares to a larger audience of European investors, without imposing any significant additional obligations.

Even if the company is seeking a dual quotation on Nasdaq and the Irish stock exchange, the benefits of a simultaneous quotation on Easdaq may be significant.

In short, the outlook is that more Irish companies will obtain a listing on Easdaq, but this will probably be in conjunction with a simultaneous listing on Nasdaq.