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Commercial Awareness Update - October 2019
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<blockquote data-quote="Bugsy Malone" data-source="post: 14022" data-attributes="member: 201"><p><strong>4. <u>London Stock Exchange Delistings ([USER=1643]@Moni[/USER])</u></strong></p><p></p><p><strong>The Story</strong></p><p></p><p>A few weeks ago, Shore Capital, a London stockbroker chose to delist from AIM, a sub-market of the London Stock Exchange for smaller, fast growing companies, after 20 years as a listed company. The firm said lack of trading volume on its London listing have left the company undervalued and the cost of being on AIM now outweighed the benefits. Shore is one of many small and midsized listed companies who have complained about the lack of liquidity in shares negatively affecting valuations. These firms’ blame Mifid II rules which came into force last year and has cut investor interest in trading some European equities, as well as uncertainty around Brexit. Shore’s delisting is illustrative of a broader decline in the LSEs appeal to both investors and companies.</p><p></p><p><strong>Impact on Businesses and Law Firms</strong></p><p></p><p>Brexit uncertainty, amongst other factors, has led to a decline in trading volumes and new listings. New listings on the LSE totaled less than $5 bilion, while the two New York stock exchanges saw over $20bn each in new listings. Overall, more companies have left the LSEs’ main market than have joined. The combined effect of all these factors is that the UK’s stock market is shrinking and valuations have declined.</p><p></p><p>A decline in the UK stock market, especially liquidity concerns, means that companies will look to list in other jurisdictions where they feel that they will enjoy better liquidity and investor interest. This has a knock-on effect on the Equity Capital Markets groups of city firms who advise companies listing on the LSE, and may see a decline in business as a result of decreased company interest. However, firms with ECM groups in other jurisdictions such as New York, or with groups that also work on international listings, may be able to profit from the dislocation of business from the LSE to other exchanges.</p><p></p><p></p><p><strong>5. <u>UK Listings at a Ten-Year Low ([USER=1160]@Alice G[/USER])</u></strong></p><p></p><p><strong>The Story:</strong></p><p></p><p>The ongoing political turmoil in the UK has ensnared another victim, the London listing market, which has suffered its quietest quarter in a decade. Between July and September of 2019, EY has stated that only four companies launched initial public offerings compared to the previous quarter which had 15 listings. It is said that companies are mindful of Brexit as well as the potential for a UK election, the outcome of which would be very hard to predict. Another worrying report is that more companies have left the London Stock Exchange this year than those who have joined it. However, despite the damning outlook for London, this has been a global trend with the third quarter being particularly poor for all.</p><p></p><p><strong>Impact on Businesses and Law Firms:</strong></p><p></p><p>IPOs offer an opportunity for companies to raise finance and capital which they can then reinvest in their business. Due to these uncertain times, businesses are clearly trying to bide their time for things to stabilise yet this could be damaging their cash flow and ability to execute their business strategies.</p><p></p><p>Law firms will also be apprehensive. Public M&A is a particular strength for firms like Slaughter and May and HSF who will no doubt be experiencing a considerably less busy period as a result. If public M&A comprises a decent chunk of a firm’s revenue, then it is possible that their financial results for this year will be slightly worse than anticipated.</p><p></p><p></p><p><strong>6. <u>Back to Basics: US-China Trade War ([USER=1]@Jaysen[/USER])</u></strong></p><p></p><p><strong>The Story</strong></p><p></p><p>Let’s bring you up to speed on the trade war so far.</p><p></p><p>Trump, unhappy with the US’s trading relationship with China, decided to impose a series of increasing tariffs on Chinese imports. China has responded with its own set of retaliatory tariffs. This tit-for-tat escalation of tariffs is what we call a trade war.</p><p></p><p>China has long been criticised for unfair market practices, including forcing the transfer of technology from US to Chinese companies, stealing intellectual property and restricting access to its market.</p><p></p><p>Along with Trump’s concerns over the US-China trade deficit (the fact that the US imports <em>from</em> China far more than it exports <em>to</em> China), these are the ‘official reasons’ for the imposition of tariffs. However, it’s worth remembering that China is a threat to the US’s dominance on the world stage, especially in a future world of high tech and AI. There is every incentive to stem the growth of the second-largest economy in the world.</p><p></p><p><strong>Impact on Businesses and Law Firms</strong></p><p></p><p>It’s hard to measure the cost of the trade war. That’s because it’s not just the cost of additional taxes being paid by businesses when bringing goods into a country, it’s also the cost of uncertainty. Businesses and investors don’t know whether the future will lead to a further escalation of tariffs or a trade truce, which makes it very hard to make long-term investment decisions.</p><p></p><p>What we do know is the trade war has led to weaker global growth forecasts, tech companies scrambling to reconsider supply chains, contractions in a variety of exports to China, lower US interest rates, and much more.</p><p></p><p>Maybe it's worth it? You might argue that the short-term cost doesn’t matter, that this is a price worth paying if it leads to a China with reformed trade practices and greater market access.</p><p></p><p>Whatever the case, clients will rely on commercial lawyers to evaluate their existing contracts, draft contingency terms into new contracts and evaluate their options for the future. In times of uncertainty, high-quality legal advice may be the only constant.</p></blockquote><p></p>
[QUOTE="Bugsy Malone, post: 14022, member: 201"] [B]4. [U]London Stock Exchange Delistings ([USER=1643]@Moni[/USER])[/U][/B] [B]The Story[/B] A few weeks ago, Shore Capital, a London stockbroker chose to delist from AIM, a sub-market of the London Stock Exchange for smaller, fast growing companies, after 20 years as a listed company. The firm said lack of trading volume on its London listing have left the company undervalued and the cost of being on AIM now outweighed the benefits. Shore is one of many small and midsized listed companies who have complained about the lack of liquidity in shares negatively affecting valuations. These firms’ blame Mifid II rules which came into force last year and has cut investor interest in trading some European equities, as well as uncertainty around Brexit. Shore’s delisting is illustrative of a broader decline in the LSEs appeal to both investors and companies. [B]Impact on Businesses and Law Firms[/B] Brexit uncertainty, amongst other factors, has led to a decline in trading volumes and new listings. New listings on the LSE totaled less than $5 bilion, while the two New York stock exchanges saw over $20bn each in new listings. Overall, more companies have left the LSEs’ main market than have joined. The combined effect of all these factors is that the UK’s stock market is shrinking and valuations have declined. A decline in the UK stock market, especially liquidity concerns, means that companies will look to list in other jurisdictions where they feel that they will enjoy better liquidity and investor interest. This has a knock-on effect on the Equity Capital Markets groups of city firms who advise companies listing on the LSE, and may see a decline in business as a result of decreased company interest. However, firms with ECM groups in other jurisdictions such as New York, or with groups that also work on international listings, may be able to profit from the dislocation of business from the LSE to other exchanges. [B]5. [U]UK Listings at a Ten-Year Low ([USER=1160]@Alice G[/USER])[/U][/B] [B]The Story:[/B] The ongoing political turmoil in the UK has ensnared another victim, the London listing market, which has suffered its quietest quarter in a decade. Between July and September of 2019, EY has stated that only four companies launched initial public offerings compared to the previous quarter which had 15 listings. It is said that companies are mindful of Brexit as well as the potential for a UK election, the outcome of which would be very hard to predict. Another worrying report is that more companies have left the London Stock Exchange this year than those who have joined it. However, despite the damning outlook for London, this has been a global trend with the third quarter being particularly poor for all. [B]Impact on Businesses and Law Firms:[/B] IPOs offer an opportunity for companies to raise finance and capital which they can then reinvest in their business. Due to these uncertain times, businesses are clearly trying to bide their time for things to stabilise yet this could be damaging their cash flow and ability to execute their business strategies. Law firms will also be apprehensive. Public M&A is a particular strength for firms like Slaughter and May and HSF who will no doubt be experiencing a considerably less busy period as a result. If public M&A comprises a decent chunk of a firm’s revenue, then it is possible that their financial results for this year will be slightly worse than anticipated. [B]6. [U]Back to Basics: US-China Trade War ([USER=1]@Jaysen[/USER])[/U][/B] [B]The Story[/B] Let’s bring you up to speed on the trade war so far. Trump, unhappy with the US’s trading relationship with China, decided to impose a series of increasing tariffs on Chinese imports. China has responded with its own set of retaliatory tariffs. This tit-for-tat escalation of tariffs is what we call a trade war. China has long been criticised for unfair market practices, including forcing the transfer of technology from US to Chinese companies, stealing intellectual property and restricting access to its market. Along with Trump’s concerns over the US-China trade deficit (the fact that the US imports [I]from[/I] China far more than it exports [I]to[/I] China), these are the ‘official reasons’ for the imposition of tariffs. However, it’s worth remembering that China is a threat to the US’s dominance on the world stage, especially in a future world of high tech and AI. There is every incentive to stem the growth of the second-largest economy in the world. [B]Impact on Businesses and Law Firms[/B] It’s hard to measure the cost of the trade war. That’s because it’s not just the cost of additional taxes being paid by businesses when bringing goods into a country, it’s also the cost of uncertainty. Businesses and investors don’t know whether the future will lead to a further escalation of tariffs or a trade truce, which makes it very hard to make long-term investment decisions. What we do know is the trade war has led to weaker global growth forecasts, tech companies scrambling to reconsider supply chains, contractions in a variety of exports to China, lower US interest rates, and much more. Maybe it's worth it? You might argue that the short-term cost doesn’t matter, that this is a price worth paying if it leads to a China with reformed trade practices and greater market access. Whatever the case, clients will rely on commercial lawyers to evaluate their existing contracts, draft contingency terms into new contracts and evaluate their options for the future. In times of uncertainty, high-quality legal advice may be the only constant. [/QUOTE]
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Commercial Awareness Update - October 2019
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