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Timely decision to resurrect Deutsche Börse small-cap index
Patrick Jenkins and Norma Cohen, FT Syndication Service
10/24/2005
LONDON: It is two-and-a-half years since Deutsche Börse, the German stock exchange operator, formally killed its Neuer Markt, the infamous high-tech index that boomed for three years from 1997 and then dramatically bust.
But the latest decision to resurrect a market segment for smaller companies comes not a moment too soon. Over the past couple of months, two German companies -- SQS Software, a computing consultancy, and Get Mobile, a mobile phone retailer -- have taken the unprecedented step of taking primary listings abroad, on the UK's Aim market for smaller companies, instead of at home.
Already about 200 of Aim's 1,323 listed companies are foreign -- many of them Asian -- and the figure is set to rise further as the London Stock Exchange goes on the offensive to draw small and medium-sized companies from across Europe. Just seven months after Deutsche Börse abandoned its proposed acquisition of the LSE, the two are going head to head in a battle to attract new listings.
Deutsche Börse is not alone in fighting back against Aim.
In May, Paris-based Enronext announced the creation of Alternext, which it describes as "an exchange-regulated market that offers simplified access to financial markets and streamlined listing requirements for small and mid-sized companies" -- a description which could easily apply to its competitor in London.
As of mid-October, 14 companies, many in the technology sector, are listed on Alternext, with market capitalisations ranging from euro13.2m ($15.9m) to euro100m.
And earlier this month, OMX, the Scandinavian exchange, kicked off its initiative to provide a listings market for smaller companies with an announcement of plans to open what it describes as an alternative market in Denmark, with other regions to follow suit.
The irony in Germany is that after years of no local listing options for smaller companies, there may now be an oversupply, as the country's anachronistic regional stock exchanges seek new ways to survive.
In July, the Munich bourse launched M:access, a market for small, mostly Bavarian companies, which so far boasts 10 listings, three of them local solar energy producers.
Deutsche Börse's short-term aspirations -- "up to 20 listings [by] the end of the year" -- sound similarly modest. But companies and equities experts are convinced the market will boom in the longer term.
Rudiger von Rosen, head of the Deutsches Aktienhistitut, says: "We have been drumming away for years trying to get a smaller companies market here. We're very glad we now have two. There mightn't be an enormous boom in listings. But longer term, there has to be the potential for 1,000 or 2,000 small and medium-sized companies to come to the market."
Daniel Wild, co chief-executive of Get Mobile, which debuted on Aim in August, after a reverse takeover by listed shell Fitzwilliam Capital, agrees. "If the Börse's new market segment had been around back in the summer, we'd have looked at it. A lot of the companies that started up in the dotcom days failed but those that survived are doing rather well. Over the next five years, hundreds of them will be queuing up to list."
Deutsche Börse believes there will be a combination of demand from private equity companies looking for exits, and from more mature mid-market Mittelstand companies where a new generation of family owners wants or needs to sell out. Listing fees are euro5,000 a year, half the main market levy and reporting requirements are far less strict.
But whatever the demand, Deutsche Börse could find it tough competing with Aim, now 10 years old, and healthily liquid.
Rudolf van Megen, chief executive of SQS Software, says: "The capital market in London is more attractive than in Germany, Since the dotcom bubble burst, there has been no market for small companies in Germany."
Perhaps the biggest challenge of all facing the new mid-cap markets in Europe is to compete with the UK tax breaks that fuel liquidity on Aim -- after two years, investors' capital gains tax liabilities typically fall to just 10 per cent.
However, despite the attraction of the tax breaks, after a rollercoaster ride over the past decade, the Aim index is virtually back where it started.
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