It was George Bernard Shaw who pithily observed that Britain and America were two great nations divided by a common language.
Nothing could be more true when considering the differences between being a public company in the US and UK.
One of the most interesting discoveries that I have made over the last few months is that those differences are not exactly intuitive.
For example, I can guarantee to drop American jaws when I announce that “There is no such thing as the SEC in the UK.”
It’s the same effect as telling a Brit that in the USA the unaccountable regulator can write you an open-ended letter querying some long-forgotten historical detail and not give a damn that it will cost you upwards of $250,000 to answer it.
The reaction, in both cases, is always the same – total disbelief. It conforms to what psychologists tell us is a normal human reaction to fundamental shock – denial followed by anger.
And in this case, the anger comes from realising that there are places on Earth where ‘light touch’ regulation has meaning.
But I’ll deal with this in a later blog when I launch SEC Anonymous.
Today I’m going to examine the British antidote to rules-based regulation – the Nomads – by answering four questions:
- What are they?
- What do they do?
- How do you work with one?
- How do you pick one?
1. What is a Nomad? “Nomad” is an abbreviation of Nominated Advisor and every company listed on AIM is required to have one. Nomads are appointed by the Exchange and must be able to satisfy four pretty basic criteria:
- Be a company;
- Have practised corporate finance for two years;
- Have acted as the principal corporate finance adviser in three "relevant transactions" during that two-year period; and
- Employ at least four "qualified executives" who must have completed three “relevant transactions” within a three-year period.
For those with more than a passing interest in the arcane details that lie behind these four criteria (or more likely don't believe it can be so simple) a longer explanation of the natural history of a Nomad can be found at Nominated Advisor Eligibility Criteria on AIM’s website.
There are presently around 90 Nomads on AIM – you can see a full list on the AIM site. Most Nomads are banks or brokers. This is because the Nomads’ fees aren’t very high and to make it worth their while, they earn further fees by also acting as a company’s broker – raising funds, advising on deals etc.
2. What does a Nomad do for me?
Nomads carry the regulatory responsibility within the market by putting their reputation on the line when they take on a client. And it is that reputation that determines whether a company will raise initial and further funds, will be respected by the media and will have access to a value-added network of contacts.
3. How do you work with a Nomad?
Because the Nomad has, in effect lent you their reputation, they have to have an intimate relationship with you that makes you and them an item. When it works well, it is a marriage made in heaven, when it doesn’t it’s what programmers call a deadly embrace!
That intimacy means that they need to know any price sensitive information before you announce it and they will advise on how to do that. They will provide you with feedback – positive and negative – from your shareholders and the wider market. Their analysts will write one or two research reports on you each year (yes, in the UK, the broker’s analysts are still trusted to tell the truth about their clients!). They will advise you on AIM’s rules; and liaise between you and the market’s executives if needed; and they will probably host meetings between you and your principal shareholders as and when required.
They’ll keep an eye on your share price and help to explain sudden movements, or their absence. And if, as is likely, they are also your broker, they will raise further funds for you as and when you need them.
4. How do you pick a Nomad?
Like a puppy, and unlike a typical US sponsoring bank, a Nomad isn’t just for Christmas – they stick with the company well after admission and/or money raising.
In fact it is a rule of the Stock Exchange that a Nomad is for ever.
If you don’t have a Nomad, your shares are suspended until you get another one – which, depending on the reasons for your Nomad abandoning you, might also be for ever!
This means that choosing your Nomad is a non-trivial step: less like attracting a VC and more like choosing a spouse.
I don’t want to endanger my own marriage of 30+ years by extending the metaphor too far, but suffice to say that the following criteria will help in selecting a Nomad:
1. Reputation: What’s their reputation? Does the market consider them to be sleazy, slick or selective?
2. Attractiveness: How attractive are they? What do the Press and institutions think of them?
3. Money: How much money can they bring to the party? What’s their fund-raising track record like?
4. Taste: Who else have they been with? You can tell a Nomad by the company they keep. Would you want to be associated with their other clients?
5. Behaviour: Are they house trained? Would you want to spend more than the absolute minimum amount of time with them?
Ostensibly, these are the same criteria that you would use to select a sponsoring bank for a Nasdaq IPO. The big difference is that when you wake up in the morning after the float party, your Nomad will still be there. And for every morning thereafter until death do you part.
So choose your Nomad very, very carefully!
As Shaw put it in Getting Married:
"What God hath joined together, no man shall put asunder. God will take care of that."
Recent Comments