Over the years IBIS Group, LLC has developed a network of European institutional investors that specialize or consider a part of heir investment strategy investing in US equities, especially small caps and micro caps. Since the Sarbanes-Oxley 404 Act was implemented in the US, many foreign and US based enterprises have chosen to be listed in Europe on AIM in London, Frankfurt Stock Exchange, and other European Bourses. This created more robust and healthy financial markets oversees; in 2005 AIM in London had 519 IPOs compared to only 45 on Nasdaq. These deals raised $11.5 billion, versus approximately $2 billion for new listings on Nasdaq (Barron’s, October 16th, 2006). Proliferation of hedge funds and advances in trading technologies also helped cities like London and Frankfurt to become leaders in international finance.
There are very few small US companies that are presenting their investment opportunities to European fund managers. These companies that are doing so enjoy a much greater exposure and rate of success in direct funding. It also can help insiders place significant amounts of their stock without impacting open market pricing and unnecessary regulatory hurdles.
The increase of regulatory framework in the US has greatly increased the cost of capital for US based companies. While in Europe, the same framework is less stringent and therefore the cost of capital is significantly lower. These observations are based on IBIS’s experiences, and clients we worked with in European markets.
Another advantage of having large European Institutions on a roster of institutional shareholders is their relative stability. Their turnover ratio is exceptionally low; they believe in long term investing and could provide a necessary stability for the stock in times of volatility.