Many companies took advantage of the less burdensome regulations, writes Una McCaffrey

When the Irish Stock Exchange established its new market for smaller companies in April, there were accusations of tardiness. Uncharitable observers wondered why it had taken the exchange so long to address the drain of Irish companies choosing to ignore Dublin and list instead on London's Alternative Investment Market (AIM).

Things came to a head late last year when markets across Europe started to face up to new EU rules for listed companies. In short, a full listing on a main market would now bring with it more regulation, and thus more costs, than ever before.

With some smaller companies in Dublin already struggling under the regulatory burden attached to the official list, it became clear that the exchange needed to act.

The solution, it was decided, lay in a "if you can't beat them, join them" approach, which would see the creation of a new Dublin market in the image of AIM itself. This would mark a departure from the exchange's previous effort to accommodate small firms - the Developing Companies' Market (DCM).

The fruit of the exercise was the Irish Enterprise Exchange (IEX) - a market where a listing would be cheaper and easier and where smaller companies could find a welcoming home.

To date, the progress of the market has been fairly steady rather than spectacular, with 13 companies currently listed. Of these, eight had previously been listed on the Exchange's Exploration Securities Market or the DCM. Two - Abbey and Donegal Creameries - moved off the main official list and the remaining three - Irish Estates, Getmobile and Newcourt - joined IEX as part of their first listings.

All of the IEX companies also have a listing in London, apart from Donegal Creameries, which transferred from the main list to IEX in October.

Most, including the exchange itself, see dual listings as the biggest source of activity for IEX in the future. A further trickle, or even a flow, of listings is expected for next year.

Conor McCarthy, a director of NCB Corporate Finance, says he generally advises clients to look at a dual listing so they can maximise their exposure to both markets and both sources of funding.

Furthermore, he points out, the additional cost attached to listing on both AIM and IEX will be minimal. This is because the two have almost identical listing rules and thus require broadly similar documentation. There will be no need to engage two sets of lawyers.

Of course, this changes when a firm already has a listing on one market and later decides to take another because new documents will be needed.

John Teeling, the entrepreneur, is currently in this position with his latest venture, Persian Gold. The company listed on AIM in July and Teeling says now that a move on to IEX would also have been appropriate.

The main obstacle to this, he explains, was that his usual nominated adviser (his "nomad") is based in Bristol and does not have an entrée to the Irish market. Persian would thus have needed to engage an Irish adviser too, a move which would have incurred extra costs.

Dr Teeling said IEX would make sense for some of his stable of companies because it would allow them a greater liquidity. His early shareholders tend to be Irish-based, with the result that London listings can fail to attract enough business at the start.

Any listing in Dublin would, however, need to accompany an AIM listing in Dr Teeling's view.

An eye should also be kept on costs, he says, acknowledging that listing on one market after listing on another is not the most efficient way of using company money.

If you list at the same time, however, you will merely face the entry costs of £4,180 (€6,112) for AIM and €4,000 for IEX. Annual fees will then amount to about the same for each market.

David Byers, partner in McCann FitzGerald, points out that sectors or origin do not matter for AIM entry. What is important, however, is that the company must be "appropriate for the market". The rules for IEX are similar, with the main difference that the market requires its companies to have a minimum market capitalisation of €5 million.

One key benefit of moving on to both markets, apart from gaining access to two pools of capital, will be exposure to investors using two currencies. Sterling investors can buy in London and euro funds can deal in Dublin.

"Both markets serve a very similar purpose," says McCarthy. In general, he explains, candidates for an AIM or IEX listing are those with a market capitalisation of, say, less than €200 million that no longer want to tap into venture capital.

They will tend to have an entrepreneurial management team and a plan to grow, probably through acquisition. While not all companies will raise money on admission, this will be a likely next step.

From the IEX or AIM investor's perspective, it is a matter of having an appetite for risk and a desire for capital growth rather than dividend yield.

"Clearly, the lighter regulation afforded to AIM and IEX companies does make the AIM and IEX riskier places to invest than the principal markets," says Byers. "Unlike the main markets, applicants are required to have neither an independent trading record nor a minimum number of shares in public hands and, on an ongoing basis, neither market requires shareholder approval of the listed company's acquisitions, disposals or other transactions other than in exceptional circumstances."

He explains that this has led to some concern in the UK that companies are deliberately choosing "the lighter touch" of AIM. He points, in particular, to the suspension, last October, of Langbar International, an AIM-listed holding company which disclosed that it was unable to verify the existence of £365 million in cash which it had previously reported holding.

The firm is now the subject of investigation by Britain's serious fraud office, while AIM has since tightened up its rules to prevent so-called "cash shells" - companies with no actual business activity that raise money for possible future deals - from listing.

From next March, such firms will need to raise a raise a minimum of £3 million and to make the first acquisition within 12 months of flotation. IEX already applies such a rule, requiring cash shells to raise a minimum of €5 million on admission.

Presuming the AIM or IEX listing works out for a given company, growth should lead management to look eventually at moving from the smaller markets on to the main lists in Dublin and/or London.

McCarthy points out, however, that some firms have recently been showing little appetite for moving off the smaller, less regulated markets, even after growing beyond their historic boundaries. One current example of this is Sportingbet, which has a market capitalisation of more than £1 billion on AIM.

McCarthy acknowledges that there might be little appeal in abandoning AIM, just to access the same investors for more cost on the main FTSE.

However, he believes the larger markets will beckon companies that have done well on AIM and IEX. There are, after all, questions of investors taking greater exposure to FTSE or Iseq companies, as well as issues of greater liquidity to consider.