France is gearing up for the launch of a new market. "Le Nouveau Marche", was officially launched on February 14, 1996, and the first quotation is scheduled to occur around May 20, 1996. The intended purpose of the Nouveau Marche is to provide a forum for young, up and coming entrepreneurial firms, whereby they can gain access to the funding they need for their continued expansion.
The Nouveau Marche is directly inspired from the US Nasdaq. Other markets based on the US Nasdaq model include the European Easdaq, based in Belgium, the U.K. Aim and other projects in Frankfurt or Milan. France is thus the forerunner in an area currently being explored by the Frankfurt, Milan and Brussels Stock Exchanges.
The Nouveau Marche is a regulated market under the EEC Directive on investment services. The Directive is scheduled to be transposed in French law around May of this year. The Nouveau Marche is an entirely autonomous market and has no vocation to become a simple means of access to other French markets. In the long run it will be part of a web of similar markets in view of the construction of a Europe-wide network. To that effect, a "groupement europeen d'interet economique" (GEIE) called Euro NM will soon be created.
THE BODIES OF THE NOUVEAU MARCHE
1. Societe du Nouveau Marche
The Societe du Nouveau Marche ("SNM") mainly approves the regulation governing the Nouveau Marche, approves new members of the Nouveau Marche, decides upon the suspension of a withdrawal of securities, and more generally manages the Nouveau Marche. The SNM is represented by its board of Directors.
The SNM was created in May 1995 following the recommendations of a work group set up to study the need to implement a new and independent stock exchange to cater to the needs of dynamic young companies. The SNM has masterminded the launching of the Nouveau Marche and will be responsible for the operation of the new marketplace.
The Nouveau Marche will benefit from the expertise of the Paris Bourse in electronic infrastructure. Data will be relayed on-line and made available simultaneously on 50,000 screens worldwide to, amongst others, Reuters, Telerate, Bloomberg, GL and Fininfo.
2. The Comite des Admissions
The Comite des Admissions, upon delegation of the SNM, approves the listing of the securities.
3. The Comite Consultatif
The Comite Consultatif is composed of permanent members with experience in the scientific and industrial fields. It assists the SNM in the promotion of the Nouveau Marche and the review of the merits of the listing applications.
While it is difficult to draw up a standard profile of the target companies for listing on the "Nouveau Marche", the obvious "target" is the fast-moving, high-potential company in a rapid expansion phase. Naturally the tendency would be towards quite young companies who given their short financial history would not be in a position to obtain funding elsewhere. While involvement in a high tech sector is not a prerequisite it is often the case mainly because such businesses often have massive cash requirements engendered by research and development costs. The single most important aspect of possible candidates is their high growth potential. The SNM already has more than 15 probable candidates in the pipeline involved in sectors ranging from biotechnology, individual insurance, marketing and communications to the computer industry. The pool of possible candidates is estimated at about 4500 companies and the SNM currently anticipates listing approximately 30 companies by the end of 1996.
Listing requirements are designed to be as flexible as possible while ensuring the best possible information for future investors. The minimum is FRF 20 million total balance sheet, and FRF 8 million in equity. At least 100,000 shares must be offered to the public, for a minimum value of FRF 10 million. Those companies who have been operating for less than two years are obliged to implement their listing through a capital increase.
The listing application must contain:
- general information such as a list of the managing shareholders, the draft prospectus;
- legal information such as by-laws, minutes of shareholders meetings;
- financial statements;
- a description of the risk factors;
- a development project including projected financials. This requirement may raise difficulties in circumstances where the shares are also to be listed or quoted in the U.S., since forward-looking statements in the context of an initial public offering may give rise to substantial liabilities in the U.S. This issue should be carefully addressed upon dual listings.
The shareholders who are managers must also undertake to keep at least 80% of their shares for the first three years after listing. For companies of less than two years standing this requirement is raised to 100% for two years, reducing to 80% in the third year. An exemption from (or limitation to) such requirement may be asked to the SNM under certain circumstances.
The company further undertakes to set aside approximately 10% of the capital raised by the floatation for the purpose of ensuring the promotion of the shares issued. Throughout the listing process the company works closely with a listing advisor/market maker who plays an important role in the admissions procedure.
THE MEMBERS OF THE NOUVEAU MARCHE
The members of the Nouveau Marche are financial intermediaries established in Europe which are qualified to operate in the investment services. They are divided on the three categories.
1. Introducteur - Teneur de Marche
The Introducteur-Teneur de Marche ("ITM") (Listing Adviser-Market-Maker) firstly prepare the application for listing and, based on a financial analysis of the company the ITM assists the company, in the preparation of the required documents and makes its financial analysis available for future investors.
The secondary function of ITM is to ensure the successful flotation of the shares, which obliges it to ensure that a purchase price/sales price is constantly available.
The ITM is responsible for the market making on the securities of certain companies (for which the SNM has appointed it) for a minimum three-year period following the initial public offering.
The Negociateur-Courtier (Broker-Dealer) is an intermediary entrusted by the SNM to execute clients order. He may also trade for his own account.
3.CompensateurThe Compensateur (Clearer) is the intermediary entrusted by the SNM with the final settlement of transactions.
The company may offer its securities through a pre-placement with selected investors. Pre-placement can be total, in which case all the shares are placed with the public and fixing takes place directly on line on the first day. Alternatively a reduced number of shares can be listed the first day, generally through a fixed price offering mechanism. In this case the price may not be above that practiced at preplacement.
Should the company decide not to preplace two mechanisms can be envisaged. One possibility is a minimum price offering (Offre a Prix Minimum or OPM) whereby the company and the ITM indicate the number of shares being offered and a minimum price. The SNM then centralizes purchase orders and fixes the share price in agreement with the listing advisor(s). Alternatively the listing advisor can fix a trading price which is firm and binding (Offre a Prix or OPF).
The market is open to both professional and individual investors. The risk element is inherent to the very nature of the market. Factors to be taken into consideration are the probable absence of dividends in the foreseeable future, a risk of losses and no true guarantees as to the longevity of the company.
In order to encourage investment in the Nouveau Marche, the French Government has recently adopted favorable tax measures in that respect. Purchase and sale of securities, as well as public offerings, capital increases and initial public offering of securities listing stock on the Nouveau Marche will be exempted from stock exchange tax (impot de bourse).
Furthermore, the favorable tax regime for venture capital is to be extended to include shares listed on the Nouveau Marche. Under this favorable regime, capital companies (Societe de Capital Risque or SCR) and venture Capital Investment Funds (Fonds Commun de Placement ... Risque or FCPR) investing at lease 50% of their portfolios in securities of companies which are not listed or which are listed on the Nouveau Marche will thus be exempted from paying corporation tax on the proceeds and capital gains of 100% of their portfolios, under certain circumstances. Similarly, individual shareholders of SCR or individuals having invested in FCPR may be exempted from paying tax on securities income under certain circumstances.
The contents of this article are intended as a general guide. Specialist advice should be sought for your specific circumstances.
For further information contact Herve Letreguilly on +33 1 44 71 17 17, or enter a text search 'Shearman and Sterling' and 'Business Monitor'.