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International International Business
NASDAQ WITH A EUROPEAN ACCENT?
Mark I'Anson, founder of Integrated Micro Products in the town of Consett in northern England, knew exactly where he wanted to list his fast-growing computer company when he decided to go public this year. He shunned both the London Stock Exchange and its over-the-counter offspring, the Unlisted Securities Market (USM). Instead, he opted to list on
NASDAQ, the traditional market for U.S. growth companies.
IMP, which makes computers that provide call-waiting services, raised $16 million in a March issue of American depositary receipts, and I'Anson, 39, couldn't be happier. "NASDAQ and the U.S. investment community just understand our sort of company better" than closer-to-home alternatives, he says. "The London Stock Exchange doesn't have any idea what the needs of smaller companies are." So disillusioned have small European companies become with costly and inefficient local markets that about 50 others have taken the same route across the Atlantic (table).
The flight of equity issuers points out a major flaw in Europe's single economic market: the absence of an organized capital market for emerging companies. Many European governments feel that the lack of such a market is a key weakness of the European Union. Starved for capital, many small companies fail. That stifles job creation and makes Europe less competitive in computers, electronics, telecommunications, and other high-tech areas. "In Europe, we have virtually missed out on the whole [small-company] sector," says Joseph B. Peeters, managing director of Dutch-based Capricorn Venture Partners.
FALL DEADLINE. But help may be on the way for Europe's entrepreneurs. Top EU officials, several national stock exchanges, and European venture capitalists are trying to create a Europewide stock market for growth companies.
With EU backing, Peeters hopes to draft a proposal for a small-business stock market by July and to have a final plan ready by November. He estimates that 3,000 to 5,000 of the 15,000 venture-backed companies in Europe, with about $5 billion in funding, are candidates for listing. "Anything that helps the expansion of small companies, which are big employers, is important in helping to solve Europe's high unemployment problem," says one EU official.
Some European bourses, principally those in France, Spain, and Denmark, support the idea. The Paris Bourse sees such an exchange as part of a solution to the problems of its second-tier and over-the-counter markets. Both have been battered by recession and are suffering from the same lack of interest from investors and brokers as London's USM. "We are very keen that [the new exchange] should have a strong European dimension," says Dominique Le Blanc, deputy general manager of the Paris Bourse. In Spain, the Barcelona Stock Exchange has also expressed interest, and Denmark's Copenhagen Stock Exchange has its own committee looking into a Europewide market serving small companies.
LONDON LESSON. But creating a Euro-NASDAQ isn't as easy as it sounds. Peeters now must knit together the interests of Europe's venture-capital, investment-banking, and fund-management industries, plus accommodate the wishes of interested stock exchanges.
Consider what happened to the largest of the existing secondary markets, London's USM, which the LSE plans to close by 1996. The exchange created the USM in 1980 as a halfway house for small companies that couldn't meet the strict requirements, such as a market capitalization of at least $1 million, for a big-board listing. In 1989, the USM was a booming market, with 420 quoted companies and a total market capitalization of $13.5 billion. But recession, neglect by LSE officials, and loose oversight and listing requirements all caused brokers and investors to lose interest.
Today, the USM has about 250 companies and a market capitalization of just $9 billion. The EU will have to ponder the lesson in London's disappointment as it figures out how to renew interest in small-company investing--and keep more listings from crossing the Atlantic.TABLE: NASDAQ IS LURING
SMALL EUROPEAN COMPANIES
Company/Country Industry Price
DANKA BUSINESS SYSTEMS (Britain) Office equipment $42.38
ETHICAL HOLDINGS (Britain) Pharmaceuticals 7.50
FUTUREMEDIA (Britain) Training programs 5.50
INTEGRATED MICRO PRODUCTS (Britain) Phone systems 6.75
OLICOM (Denmark) Computer networking 9.38
FUEL-TECH (Netherlands) Pollution control 10.25
HEIDEMIJ (Netherlands) Engineering 11.25
PETROLEUM GEO-SERVICES (Norway) Seismic data 16.38
*May 31 DATA: NASDAQ INTERNATIONAL LTD., BLOOMBERG FINANCIAL MARKETS
Richard Evans, with Paula Dwyer, in London