Chris Gotts

Traditionally businesses in Scotland have sought to grow organically and through acquisition with private and/or debt funding, with their exit coming via a disposal.

Calnex is an excellent example of how raising funds via capital markets can deliver a great result for all stakeholders. Calnex has strong financials, a clear strategy and a global blue-chip customer base, all of which generated significant institutional investor demand for its shares as part of the IPO.

This afforded its shareholders, including Scottish Enterprise, the Maven-managed Scottish Loan Fund and various angel investors, with an exit opportunity. A number of shareholders and employees elected to partially cash-out at a good valuation and retain a tradeable shareholding in the business, not usually an option where the exit route is a disposal.

The IPO route will also provide Calnex with increased market profile and a strong and well-funded platform for delivering future growth through acquisitions. It will also ensure its headquarters remain in Scotland, something that you don’t always see when Scottish tech companies sell to overseas buyers.

Despite the global coronavirus pandemic dampening IPO activity so far this year, investors are now adapting and further IPO activity in the coming months in anticipated as a consequence of some pent-up demand.

Generally COVID-19 hit the IPO market very hard. Lockdown meant that it wasn’t possible for investors to meet management teams in person, but that’s now changed with virtual marketing now accepted. There is plenty of money that needs to find a home, so the institutions have had to adapt or lose out.

Despite Calnex being one of only a handful of AIM IPOs this year, secondary fundraising activity on AIM during lockdown was very strong with record amounts of money raised.

Existing investors backing their portfolios is a different proposition to investing in a new business. The investors know the management teams and their businesses, so the virtual marketing imposed by lockdown was adopted with relative ease.

There is also a trend where an increasing number of oil and gas pure exploration companies, such as Savannah Energy and i3 Energy, using their AIM listings to raise substantial funds to acquire portfolios of revenue producing assets.

With the price of a barrel of oil continuing to remain low and the fundraising environment for exploration activity challenged, a number of exploration businesses have been acquiring producing assets in order to secure future revenue streams rather than being wholly reliant upon external sources of funding.

In addition to providing capital for exploration activities, this revenue should facilitate dividend payments and with that access to a broader pool of investors and improved liquidity in their shares.

The acquisitions by Savannah Energy and i3 Energy were classed as reverse takeovers (in effect both companies acquired businesses that were larger than themselves). Consequently, the enlarged business essentially is required to undertake a new IPO.

These acquisitions would have been much more difficult to achieve were the companies not listed in the first place.

The overall number of AIM IPO and reverse takeover deals this year has undoubtedly been impacted by COVID-19, with less than a dozen in the UK so far, of which we have advised on three.

However, a move to the capital markets is a sensible option for a number of businesses, and it would be fantastic to see more Scottish companies follow this route as IPO activity picks-up as and when lockdown restrictions start to ease.

Chris Gotts is a partner at Burness Paull