Wales is home to more quoted companies than it was a year ago. As market conditions get tougher Douglas Friedli looks at whether we are likely to see more flotations this year and asks whether it matters how many plcs Wales can boast.
First, the good news. Wales enjoyed a mini flotation boom last year, with Moneysupermarket.com joining the main stock exchange and five smaller firms joining the junior AIM market. It reversed years in which the principality's band of quoted companies steadily dwindled against the UK-wide trend.
Now the tough part. With the stock market in turmoil and uncertainty over the effects of the credit crunch, nobody expects a bumper crop this year.
But the companies that did float - including TV production group Boomerang Plus and lighting systems company Enfis - have at least shown it can be done.
Finance Wales backed three of last year's market debutantes. Investment director Peter Wright says: "More businesses going to AIM is a good sign. It is all about confidence. It shows that you don't have to be a £3100m valuation business to float.
"The more role models we have, the better. People like Sir Terry Matthews and Sir Richard Branson, they are almost too big to be relevant to most people. It is very useful to be able to say, "you can do this too'."
Joining the stock market was once seen as an end in itself, an exit route for investors who had stuck by a company through its growth phase. Now companies are more likely to float, particularly on the Alternative Investment Market, to get the cash and paper for further expansion. Examples close to home include Freshwater, the PR group, which raised £34m, and Boomerang Plus, which gained £33m when it joined towards the end of 2007.
Rob Cherry, a partner at Morgan Cole, says: "More and more entrepreneurs and owner-managers in Wales are becoming alive to exit routes other than trade sales and exploring options such as leveraged buyouts, private equity backed arrangements, cash out arrangements and also flotations on PLUS Market (formerly Ofex) or AIM, all of which is helping to keep successful Welsh indigenous companies growing within the principality."
There is another argument for wanting more companies to gain plc status. More flotations, the logic goes, means more need for advice, more advisers, and a virtuous circle whereby advice is easier to get so it is easier to float. "It is good for Wales to get more attention and focus on the region in terms of skills, finance and all the rest of it," says Brenig Preest of Wales Fund Managers.
But Gerallt Jones, partner at Hugh James, warns against getting too concerned about the number of quoted companies Wales has at any one time. "It is good for the Welsh economy to have a stock of quality companies, whether quoted or not," he says.
"For example, both Admiral (the insurance group) and Peacocks (retailer) are flag bearers in Wales. At the moment one is listed and the other is not. "For the smaller companies that are typically looking for initial listings in Wales, it may be sensible in these turbulent market conditions to concentrate on running and growing the business rather than diverting valuable resources towards a listing."
Estimates of how many companies might float this year vary. Cherry forecasts "five or fewer" flotations this year. He says: "The market is difficult at present and this looks set to continue for some time, although the difficulties in obtaining debt backing for a leveraged buyout might drive owners into the arms of institutional equity as a means of realising at least part of their investment."
For the rest, Cherry agrees with Jones that they should focus on growing, sort out any problems they may have, "and generally put themselves in a position to float successfully and with an optimum valuation when the markets bounce back."
Finance Wales may have provided the bulk of new plcs in recent years, but Wright says activity will calm down this year. "The writing was on the wall round about November/December time. I said to my board about the credit crunch easing - don't hold your breath."
Environmentally friendly technology, he believes, could be one sector to do well in a market driven by fear. "It is in a sexy space. There aren't many companies in that space, and fund managers are keen to balance their portfolios."
Looking further ahead, there are doubts about how many companies will be in a position to join the market even given a fair wind. Many of the most suitable companies have already joined up, and there is no hot prospect on everyone's lips right now.
Tim Jenkins, managing director of TJ Markets, says we may be in for a wait: "In all probability we are going to struggle. We should follow the Scottish model, where the venture capital market is much more refined. A lot more institutional investors are interested in the Scottish market."
In the absence of a large venture capital community, he advocates setting up "some sort of mechanism to bring companies closer to the market and closer to capital" - something like a local stock exchange.
But Wright at Finance Wales believes there is little the Welsh Assembly or other authorities can do to boost the number of quoted companies in Wales.
He just hopes that the occasional barb directed at AIM-listed companies does not result in more regulation for the market which is meant to offer a lighter touch. "There is enough self-regulation out there," he says. "Some sectors will suffer and others will fail, that is what happens in a slowdown. AIM is well enough regulated."
So far in 2008, one Welsh company has left the stock market - BBI, the biotechnology firm which was acquired by Inverness Medical of the US for £383m.
Last year five Welsh firms left the market, but the flipside of the credit crunch is likely to be that with less cash around, there will be less incentive to leave AIM or the main market.
If the London Stock Exchange holds its nerve on regulation, Wright believes that few companies will want to leave.
"Those that joined recently will probably want to use their paper to acquire others. They are on the market for the right reasons - not just vanity. It is part of their strategy."
But it will not necessarily be easy. "If I was a betting man I would probably say that the FTSE will be down by the end of the year. It seems to be hovering around the 6,000 mark, which is surprising given that it was just over 6,000 nine months ago (before the credit crunch became apparent). It will be a real rollercoaster ride."