TAKING COUNSEL: First North 's an alternative marketplace for small and medium enterprises 's soon to open in Tallinn

  • 2007-10-10
  • by Mariana Hagstrom [Teder, Glikman & Partners]
Estonia's parliament is processing a draft law amending the Securities Act and related acts, pursuant to which the amendments should come into force on Nov. 1. These amendments will enable the opening of the alternative marketplace First North, which is already operating in Scandinavian states and in Latvia. This market would operate parallel with the regulated market organized by the Tallinn, Riga and Vilnius stock exchanges. The minister of economic affairs and communication of Estonia, Juhan Parts, has already expressed his support to opening the alternative market in Tallinn.
If quoting securities on a stock exchange seems to be a too big step, then entering into an alternative market might be a suitable interim step for raising capital, increasing the notoriety and credibility of a company and also a further quoting of the company on a stock exchange.

Research by Smith and Williamson as to why enterprises should decide to enter the alternative market AIM operating at the London stock exchange provides compelling evidence. Pursuant to the research, in 72 percent of cases the "general motivation" is raising capital, thereafter in 63 percent of cases acquisition of enterprises, in 57 percent of cases an increase of notoriety of enterprise and in 40 percent of the cases the reason is simply to motivate employees.
In 37 percent of cases the purpose was to raise the status/reputation among clients and only in 7 percent of cases the use of AIM was mentioned to be an interim step prior to quoting on stock exchange.
The alternative market is an unregulated securities market, the entrance into which will be much easier for an enterprise. For example, a prospectus can be submitted in a simpler form, and there will be no free float or requirements for a company's history and capital and minimal requirements for public disclosure of data.
At the same time one must not forget that the securities of a company that has entered the alternative market are also publicly traded and therefore the company, as well as its economic results, will come under public surveillance. Enterprise managers must insure their ability to demonstrate that they are managing the company in the interests of shareholders. Management should be prepared for larger exposure regarding disclosure of financial status and other details concerning the company's development and plans for the future.
When considering entrance into the alternative market, one must take into account that this market expects simple corporate and group structure, but not a structure that has been developed within a long time period and that still reflects all historical events or transactions of the company/group.
Often a new holding company is established on top of a he group, which a company then will ensure adoption of articles of association appropriate for publicly traded enterprise, thus avoiding amendment of existing structures of the companies and shareholders' agreements. While reviewing the structure of a group it is also recommended to review spheres of companies' activities and try to focus on one primary sector/activity in order to be prepared to develop this sphere or new directions with raise of capital.

Companies that intend to enter the alternative market must first contact an attested counsel, usually an auditing company, law firm or investment bank. After entry into the alternative market the counselor (sponsor) must be representing the company before the stock exchange and public.
With an alternative market the investor should also take into account the higher risks and lower support of investors; therefore, compared to regulated market, investment into the alternative market requires more thorough preparation and analysis by the investor.

Mariana Hagstrom is an attorney at law at Teder, Glikman & Partners, a member firm of the Baltic Legal Solutions, a pan-Baltic integrated network of law firms, including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.