By Hallie Busta
— More foreign companies plan to issue initial public offerings on U.S. exchanges in 2011, while many small domestic businesses are steering clear due to the cost and regulation of going public in the United States.
The push into U.S. markets will come primarily from Asian firms, with China economy a major driver of the growth, according to a study released last month by BDO USA LLP in Chicago. More than half of capital market executives at investment banks polled predict the percentage of foreign businesses IPOs on U.S. exchanges will increase in the coming year, while fewer than than one-third think the numbers will remain unchanged. The global accounting and consulting firm polled capital market executives at leading investment banks about the outlook of U.S. initial public offerings in 2011.
Chinese companies and other emerging market businesses that want to do business internationally will increasingly be lured to the high standards of U.S. exchanges, said Wendy Hambleton, a capital markets practice partner at BDO, in a company release.
Improved access to capital
While going public in the United States entails stricter requirements and higher costs, Hambleton said U.S. markets provide improved access to capital and liquidity as well as offer name recognition. Four in 10 investment bankers predict an increase in U.S.-led IPOs globally, while a slightly smaller percentage expects them to remain at about 17 percent of the global market, according to the study.
But some U.S. small businesses might head to foreign exchanges before going public here, which Hambleton said is more due to the growth of networks in emerging markets, than the higher costs and regulations found on U.S. exchanges. For companies seeking capital and that have a growth plan in place, there really not a huge advantage to going public outside the U.S., she said. In turn, foreign companies are coming to the United States because of the prestige and access to capital that the markets provide, she said.
Patrick Stakenas, owner of ForceLogix in Libertyville, took the sales software company public in December 2009 on the Canadian exchange TSX Ventures because he thought it would require less paperwork and cost less than going public on U.S. exchanges, he said.
The company plans to enter the exchange were finalized by August 2008, but the recession forced them to wait more than a year while still being subject to audits, ultimately making it more expensive than expected, he said.
If we didn t have the Canadian option, we probably wouldn t have done it, he said.
Filling a gap
In fact, TSX Ventures is a well-known starting place for small firms wanting to go public, even those who have yet to bring in revenue, Crain Detroit Business reported in July. In 2009, IPOs on the exchange averaged $4 million while those on the U.S. markets averaged $800 million, the article said.
We fill a gap that U.S. markets have basically vacated the last 10 years, for small- and mid-cap companies, Raymond King, senior manager of global diversified industrials for the larger Toronto Stock Exchange and TSX Ventures, told Detroit Business. What you call micro-cap or nano-cap, we call mid-cap. About 150 U.S. companies are listed on the two Canadian exchanges, according to Detroit Business.
Stakenas said it unlikely that his company, which currently employs six, would have grown to its current size on a U.S. exchange, because of the more stringent regulations. ForceLogix announced late last year that it would be acquired by Pleasanton, Calif.-based sales performance management software company, Nasdaq-listed Callidus Software Inc. for approximately $3.75 million, according to release by Callidus. The acquisition is expected to be finalized in the first quarter of 2011, the release said.
Many of the IPOs in 2010 featured small and medium-size businesses that already had been through a round of investment capital, Hambleton said
Small business owners wanting to take their companies public should look at the strategies that existing public companies have used as they begin the process themselves, she said.