The number of UK listed equities is going down, while the number of UK private companies (with over 100 employees) is going up. This has been happening over several years and looks to set to continue. This demonstrates the need for private companies to trade their shares and create secondary liquidity. Cees Vermaas, CEO of The International Stock Exchange (TISE), which offers TISE Private Markets, discusses private markets and the Private Intermittent Securities and Capital Exchange System.
The UK economy is at a crossroads, with an increasing number of listed companies choosing to stay private. Low liquidity, the high cost of going and remaining public and economic uncertainty are shifting the UK into a private market economy.
Out of a workforce of 33 million, 27.5 million work for a private company. Over the past decade, the number of private companies has increased by more than 3,096, bringing the total to 19,150 firms, each employing over 100 people. Meanwhile the number of listed companies has declined by 271 and now stands at 1,260. The private company sector is now 15 times larger than the public. And a lot of these private companies fall into the SME category.
The cost and complexity of maintaining a public listing has become a financial and managerial burden. Listing on even a junior market like AIM can cost anywhere between £200k to £800k per year. The fees for brokers and auditors are additional, increasing the financial obligation even more.
It is no surprise that many companies – especially those in the mid-market – are choosing to remain private for longer or are reconsidering their listed status altogether.
To enable private companies to grow, it is crucial to improve share liquidity for stakeholders and attract investment. As the UK economy moves towards a predominantly private market, we must reassess our approach to corporate growth.
Private companies have historically struggled to find an efficient mechanism for share trading and while there are some existing secondary market liquidity platforms, these rely on traditional public market infrastructure providers, such as brokers and other intermediaries, who levy charges based on transactional activity.
A pending development is the Private Intermittent Securities and Capital Exchange System (PISCES), which Chancellor Rachel Reeves has committed to establishing by May this year. Once introduced, it will enable the likes of the London Stock Exchange Group to operate a platform that would, in effect, allow a company to go public temporarily while providing access to a wider pool of investors before reverting to its private status.
However, there is some uncertainty about demand for PISCES and the practical costs of this platform also need to be resolved before the concept can be realised. We will wait until May to see what the final platform will look like, but, from what we know, PISCES will bring with it many of the obligations of being a publicly listed company. This includes the involvement of brokers and other intermediaries who charge fees and commissions for their services. Private companies stay private to avoid this additional bureaucracy and cost.
SMEs in particular could benefit from an efficient solution that could help them grow. Afterall, they are the lifeblood of the British economy. SMEs provide the bulk of goods and services we all use, create most of the employment and generate tax revenues and export overseas. However, their ability to access capital is still hindered by the cumbersome processes that come with buying and selling shares in private companies. It’s unreliable, drawn out, expensive and uncertain. Typically, a private SME shareholder would need to initiate contact with the company, which is then tasked with identifying potential buyers or sellers of the shares. This back and forth can take weeks, or even months, adding complexity to a transaction that could otherwise be swift and efficient.
What’s clear is that private markets need a solution for liquidity to achieve the desired recycling of money into new investments. That’s why we launched TISE Private Markets, so that we can leverage the opportunity offered by private markets.
A fully disintermediated trading proposition which provides private companies and other managers of private assets with their own stock exchange in a box is what the SME space requires. In this environment they can efficiently and effectively manage their share registers and host liquidity events for existing shareholders and to which they can invite potential new shareholders. In a private company economy, this is the future.