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Compass makes history with fundraising and opens door for more smaller investors

The proposed placing will be the first ever accelerated share placing by a FTSE 100 company to include a retail offer

Compass Group -
Smaller investors have long been squeezed out of City fundraisings

Compass Group PLC’s (LON:CPG) planned fundraising will be the first FTSE 350 share issue since the coronavirus outbreak to give private investors a piece of the action.

More importantly than that, the proposed £2bn placing has included a retail investor offer via the PrimaryBid platform, meaning it will be the first accelerated share placing by a FTSE 100 company ever to include a retail portion.

It goes without saying that it is the largest total deal that PrimaryBid has been involved in of its 57 deals and may open the sluice gates to allow retail investors to take part in most or maybe all big deals from now on. 

Compass’s placing, which the caterer announced on Tuesday morning to strengthen its balance sheet during the coronavirus pandemic, takes the total to around £6bn raised by London-listed companies since the start of March.

Because of the pandemic, private investors have been locked out of most of all but a few deals, with only SRT Marine Systems (LON:SRT), Inland Homes PLC (LON:INL) and Xeros Technology Group PLC (LON:XSG) having used PrimaryBid this year.

What's made things worse during this crisis is that since early April, the Financial Conduct Authority backed a move for the normal pre-emption rules, which give all existing shareholders first refusal on issues of new shares above 5% of a company’s total share capital, to be relaxed for issues up to 20% until September.

While understandable amid the urgent need for liquidity, it prompted a warning that “UK retail investors are not receiving their entitlements to participate in these often discounted fundraisings” in an open letter sent by PrimaryBid and senior City figures from the likes of Hargreaves Lansdown, AJ Bell, Standard Life Aberdeen, Interactive Investor, The Share Centre, and several shareholder groups to the chief executives of all listed UK PLCs. 

Landmark event

“That it’s the first time a FTSE 100 retail offer has been part of an accelerated placing is in itself a landmark event for the capital markets industry and I’m delighted that we played a part in making that happen,” James Deal, chief operating officer of PrimaryBid, tells Proactive.

Compass is the first blue chip company to “respect all shareholder rights” by choosing to add a retail tranche to an accelerated institutional placing, Deal adds.

After the platform worked with five of the last six major fundraisings but saw companies get “spooked” at the last minute, he is now optimistic that the tide may be changing.

“What this deal does is that it puts to bed any of those concerns, whether it’s around liability or process or documentation, and that’s a good thing.”

“I’ve had six calls today from different banks who have prospects they want to bring to us, so that's a signal. And we have a pipeline of 30-40 companies who want to use us between now and the end of the year — and that’s for a mixture of existing listed companies, IPO prospects and investment trusts.”

At the moment, PrimaryBid users buy shares via its app or website, paying via their debit card or one of a handful of smaller brokers, with the shares transferred into their nominated portfolio, including on the investment platforms.  

Deal says the technology's current reach of around half a million individuals on a given transaction is set to be transformed to around 5mln as investment platforms “are accelerating in a race to integrate with us”, meaning any qualifying investors will be able to participate directly in fundraisings via their ISA in the same way as buying any share on the open market.

“The platforms recognise that we are complementary to them and not a threat, that we solve a problem that has been existing for a long time. They are pretty tired of trying to participate in these deals and not being given a fair allocation in the process. 

“Every time we do a deal, all parties concerned say ‘wow, that was simple and straightforward and there were no complications’.

“We’ve got critical mass now, the groundswell is obvious — almost every adviser recognises the value of what we bring to bear, and are keen to work with us — they see that we are good people trying to do a good thing.”

Platform partners?

There were positive words from one broker that has worked with PrimaryBid on some of its previous fundraisings, with Sam Smith, boss of small cap-focused broker FinnCap saying: “It should be a positive thing for companies and brokers as it encourages a broader pool of retail investors to buy shares which helps liquidity.”

But potential partners in the form of fund platforms were a bit more cagey, however.

A Hargreaves Lansdown (LON:HL.) spokesman said the group supports measures that improve investor outcomes and “help level the playing field between private and institutional investors”.

However, stressing that “investor protection will always be our top priority” and that people “must have sufficient information and time to carefully consider the investment on its merits in the prevailing circumstances”, suggested the investment supermarket might not have yet made a decision on how closely it will work with PrimaryBid.

For its part AJ Bell (LON:AJB) said it was “too early to talk about how PrimaryBid might work with investment platforms” but as per the open letter, “we believe retail investors should have access to rights issues rather than them being the preserve of institutional investors”.

This is particularly the case where retail investors are already an existing shareholder of the company raising money, the AJ Bell spokesman said: “Given the speed at which rights issues often happen, technology and communication is going to be required to facilitate that and if PrimaryBid can help in that regard, we’d see that as a positive for retail investors.”

However, there is some concern mooted in the market that changes to pre-emptive rights creates a potential risk of investors being tempted to invest solely based on the share price or the discount offered in the fundraising, without taking due consideration of the investments’ fundamentals and forced to make a decision in a short timeframe.

 

Quick facts: Compass Group

Price: 1343.5 GBX

LSE:CPG
Market: LSE
Market Cap: £23.97 billion
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