Looked at in isolation, the announcement by United Drug that it is exploring the possibility of delisting from the Irish Stock Exchange and moving to the London Stock Exchange makes perfect sense.
Even though it is an Irish company, 70% of its revenues come from its overseas operations. Moreover, its future growth potential hinges on further expansion of its international business.
The London Stock Exchange is the biggest in the world and offers a much bigger pool of investors and liquidity for a company such as United Drug than Dublin ever could.
Moreover, these are worrying times for the Irish Stock Exchange. This announcement follows hot on the heels of Greencore’s decision to move its sole listing to London. CRH also recently switched its primary listing to London, although it retains its listing in Dublin. Could this be the start of a broader trend?
Over the past couple of decades, no other sector has been affected as much by the forces of globalisation than financial services. Competition has become intense. There has been a huge amount of consolidation in the industry. Survival means achieving the right economies of scale.
This favours bigger players. The cost of listing in London is much the same as Dublin. Moreover, the more companies that plump for London means less fee income for the Iseq and less business for Irish brokers, which further undermines the viability of smaller centres such as Dublin.
If the trend continues, then do exchanges like the ISE have a future? How United Drug fares on the LSE, if it pursues that option, will have a huge bearing on the answer.
It makes sense for a large cap company such as CRH to have a primary listing on the LSE. It is one of the biggest companies in the world in its sector and is big enough to be part of the FTSE100 index, which ensures buoyant liquidity.
But the fate of mid-cap companies such as United Drug on an exchange as big as London could go either way. It may find that it struggles to get covered by international brokers because it is just one of many similar-sized companies in its sector. Consequently, it may not generate the hoped-for levels of liquidity. There is also the currency risk of a company registered in Ireland having its only listing in sterling.
In that case, it would make sense for firms of mid-cap size and smaller to remain in local markets. That way it is guaranteed the necessary broker coverage and the attendant levels of liquidity.
One thing is for sure: If United Drug does take the plunge and move to London, in the rapidly evolving world of financial services, it won’t take long to find out whether it was the right move or not.
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