The practice does not lend itself to naked short selling ...
David Hendricks: New breed of IPO just might work here
Web Posted: 03/16/2006 12:00 AM CST
San Antonio Express-News
Up-and-coming companies needing $20 million to $100 million to boost their chances for success have few choices.
Bank loans? Venture capital? Going public?
The choices narrow even more in South Texas. Bank loans are unlikely and expensive, especially for new companies. Venture capital has never been abundant in this part of the country. Going public, a favorite avenue in the late 1990s, became more expensive and a labyrinth after the Sarbanes-Oxley Act was enacted in 2002.
The London Stock Exchange has developed an initial public offering product, however, aimed at small U.S. energy and technology companies. The San Antonio Technology Accelerator Initiative and the law firm of Haynes and Boone are bringing London exchange representatives to San Antonio next week to explain their decade-old "Alternative Investment Market."
To date, AIM has attracted more than $42 billion for companies on the London Stock Exchange. AIM lists 1,400 quoted companies, including 220 based outside the United Kingdom — 29 of them in the United States. Nineteen U.S. companies listed in 2005 alone.
AIM does not require a minimum market capitalization, earnings, stockholders' equity, trading volume or share price.
That's bound to raise a trading floor full of questions. Didn't too many technology companies go public in the 1990s with business models that ignored earnings? Will abusive short-selling techniques called "naked short selling" pound these stocks into near worthlessness, as they do with many low-priced small-cap companies in the United States? Who buys AIM stocks anyway?
Bryce Linsenmayer, a Haynes and Boone partner in Houston, gives a preview for some of the answers.
"To say this is a wild and wooly market is not really fair" to AIM, Linsenmayer said. Due diligence on companies is performed thoroughly and rigorously, he said. Company managements are vetted for their reputations, and all company claims are verified.
IPOs are limited to 100 shareholders, but typically only 30 to 40 purchase the initial shares, Linsenmayer said, adding, "They all know each other."
That practice does not lend itself to naked short selling, in which traders abuse the time period between bidding and paying for shares that don't technically exist to manipulate prices.
"As a practical matter, it doesn't seem to happen. There have been no complaints," Linsenmayer said.
Nearly all initial shareholders are institutional firms such as Fidelity Investments, JP Morgan and other U.S. companies that operate investment activities through European headquarters, Linsenmayer said.
The London Stock Exchange itself certainly isn't chopped liver. Nasdaq last week bid $4.2 billion to buy it, and the New York Stock Exchange is said to be pursuing it too.
Obviously, any company must devote much thought and care before going public on any exchange. Given the options, though, it never hurts to explore the few that exist.
The free AIM seminar will be from 5 to 7 p.m. Wednesday at the University of Texas at San Antonio's downtown campus, in the Riklin Auditorium in the Frio Street Building. Registration may be arranged by calling SATAI at (210) 458-2523 or visiting www.satai-network.com.
dhendricks@express-news.net
