For too long, retail shareholders have been dealt a poor hand when it comes to accessing secondary market equity raises. It’s all too common for companies to raise funds through institutional placements without giving loyal retail shareholders the option of participating through an open offer, citing the substantial increase in advisory fees since the introduction of Mifid II, a consequence of the additional documentation required.
London-based fintech, PrimaryBid, a champion of small investors, has been addressing this issue, providing retail investors access to share issuances that were previously only reserved for institutional or professional investors. Enjoying a close collaboration with the London Stock Exchange, the well-funded company has helped facilitate share offerings for retail investors in more than 150 IPOs and follow-on share issues in the past couple of years.
However, retail investors are still being placed at an unfair disadvantage to larger institutions. The case of royalty finance company, Duke Royalty (DUKE:34p), is a case in point. On 10 May this year, the company released a RNS to the London Stock Exchange at 4.44pm, outlining details of an institutional placing to raise a minimum of £15mn through an accelerated institutional bookbuild and £1.5mn through a retail offer on the PrimaryBid mobile app.
Full details of the PrimaryBid offer were announced through an RNS at 5.08pm, so after trading on the London market had closed. Many private investors did not stand a chance of participating as the offer closed later that day, placing them at a distinct disadvantage to institutions who would have been sounded out by Duke’s corporate broker well ahead of the 4.44pm announcement. Effectively, the placing was a done deal, hence why Duke announced at 7.05am the next morning that it had successfully raised £18.5mn through the placing and £1.5mn from the PrimaryBid offer.
Several retail shareholders have contacted Investors’ Chronicle, rightly incensed by the undue haste at which the PrimaryBid offer was executed, noting that they simply didn’t have enough time to act. Also, because Duke did not issue a prospectus – it was not required to do so – major retail investment platforms including Hargreaves Lansdown did not notify their clients of the PrimaryBid offer as it was not classified as a traditional corporate action.
Moreover, in client correspondence seen by Investors’ Chronicle, Hargreaves Lansdown stated that “even if this was an event that we would use reasonable endeavors to notify you of, the RNS was published at 17:08 with the deadline being the end of the day. I hope you can appreciate that given the notification was after market close, this would not have been enough time to generate communications and distribute it to clients who hold Duke Royalty shares with Hargreaves Lansdown.”
Of course, retail investors who already had an account with PrimaryBid would have been alerted, but they represent a minority of the private retail investment community. A new client would have needed to download PrimaryBid’s app, complete the registration, transfer funds from their bank account, and then subscribe to Duke’s equity offer in a matter of hours. This hardly puts them on the same footing as institutions.
There are two key lessons here: firstly, all listed companies must provide retail investors with sufficient time to act on a fundraise; and secondly, a PrimaryBid retail offer needs to be classified as a corporate action so that retail brokers’ alerts are automatically issued to their clients. Although I remain positive on the investment case for Duke’s high yielding shares, which have delivered a 28 percent total return since I included them in my 2021 Bargain Share Portfoliothe board has done itself no favors by executing a PrimaryBid offer with such undue haste, and lack of consideration for its loyal retail following.
Fortunately, a leveling up of the playing field could happen in the coming weeks. That’s because the founders of Investor Meet Company, a digital platform that connects retail investors for free to over 600 UK listed companies for live investor presentations, giving them the same access to management teams as institutional investors around results, capital market days and annual meetings, is launching a new investment platform, BookBuild, a direct rival to PrimaryBid.
It’s timely, as the recommendations released last week from The Secondary Capital Review stated that “due consideration should be given by a company conducting a fundraise as to how it will involve retail investors on the same terms and conditions”. It goes further to state that the default assumption should be that they will be. Supported by a number of investment banks, who represent over 450 quoted companies, BookBuild will enable any investment platform to make fundraises and IPOs from any registered investment bank available to retail investors through their existing brokerage accounts, ensuring that the position of existing shareholders can be fully considered.
The importance of not only providing the opportunity for retail investors to participate in a fundraise, but to do so on a more informed basis, while having a longer timeframe to do so, directly through their existing brokerage account, will be key to leveling up the playing field. It can’t happen a moment too soon.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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