Monday, October 09, 2006

Silicon valley firms look to London's AIM

We knew that foreign resource and mining companies had flocked to London's Alternative Investment Market (AIM) in recent years, but it still came as a bit of a shock to learn that Silicon Valley firms were looking to do the same.

The front page of today's Financial Times carried this report by Chris Nutall:

Dozens of Silicon Valley companies are lining up to float on Aim, London's junior market, as US businesses weigh up ways to raise funds at home amid the high cost of going public under the Sarbanes-Oxley Act.

More than 100 technology companies have been considering listing on Aim, say industry insiders. London Stock Exchange officials have made at least six visits to the Bay area in the past year to hold seminars and raise awareness.

Gary Benton, a technology lawyer for 22 years in the area and a partner in the Palo Alto offices of Pillsbury Winthrop Shaw Pittman, said the level of interest in the London market was unprecedented.

"Even though Aim has been around for 12 years, no one paid attention to it until six months ago. Since then there's been a pretty steep curve of interest."

As the FT's report mentions, the high costs and hassles associated with Sarbanes-Oxley are driving smaller corporations away from America's financial markets. Instead, these firms hope to find refuge from such burdensome regulation by listing abroad.

Last March, in a commentary on exchange consolidation (see, "Exchange Fever"), I repeated the following arguments regarding SOX's negative impact on the financial markets:

The effect that such onerous legislation may have on smaller public companies is not the exclusive concern of overseas market professionals. Eliot Spitzer has now joined the chorus of critics that say Sarbanes-Oxley has overstepped its bounds and creates "an unbelievable burden for small companies." Amazingly, this same criticism has been leveled by Representative Michael Oxley, co-author of the legislation. Oxley has even urged the SEC to roll back some of the burdens facing smaller companies.

As we can see, the regulatory environment is not only taking its toll on existing companies, it's also drawing new listings away from the NYSE, Nasdaq, and AMEX.