Instituto de Empresa Business School

This is one of the main conclusions drawn from the survey Spanish Stock Exchange 2009: Situation and Outlook carried out by IE Business School and public relations consultancy firm Kreab Gavin Anderson. The study was based on the responses of 51 key players on the primary stock exchange and was led and presented by the director of Masters in Finance at IE, Ignacio de la Torre.

Professor de la Torre believes that the current situation of uncertainty on the stock exchange is hampering floats, as evidenced by the replies given by most participants in the survey. He feels that everything would seem to suggest that the stock exchanges are closed for floats. "The current aversion to risk and the fact that high-level volatility makes it difficult to value businesses on the stock exchange has resulted in mass purchases of government bonds. Depressed multiples are enough to put any seller off, while buyers are put off by the complete uncertainty of results forecasts".

It is important, however, to remember the dynamic nature of the markets and how suddenly perceptions of the factors that drive floats can change. Ignacio de la Torre confirms that the credit crisis has led to a before and after as far as access to bank funds is concerned. "The situation is not temporary and is set to last some time. Hence, businesses must open up alternative funding channels as a critical part of their strategy. Both the continuous market and the AIM will be key factors in providing alternative finance to help businesses meet this huge credit challenge. In the IE Masters in Finance, we have strived to reflect this situation by offering courses on alternative sources of finance and sessions focused specifically on floats. Given the present financial situation (lasting bank credit restrictions), we very well might be surprised by floats on the stock exchange in the near future, and we will see companies being successfully floated on the stock exchange in Spain".

More exclusions and mergers

The report also shows that more than half (58%) of those taking part in the survey expect an increase in exclusions of currently listed companies. The report highlights that among financial brokers (banks and boutiques) the number anticipating an increase in said exclusions rises to 68.8%. This increase would be the result of sectorial concentration, the current low value of businesses, and low levels of liquidity. Ignacio de la Torre feels that the main drawback to this argument is that an exclusion is usually carried out by means of a transaction that requires the buyer to assume bank debts. In the current situation, there are doubts as to whether or not such finance would be available".

The same percentage (58%) consider that the number of mergers and takeovers of listed companies will increase in 2009, especially during the second half of the year, if finance problems have eased by then. Mergers would be most prevalent in two of industries most affected by the current economic crisis: the finance and real estate sectors. However, they would also occur in the energy sector, which is set to undergo a restructuring process on both a national and European scale.

88% of those who took part in the survey consider that the current legislative framework is sufficiently attractive for floats, although there is room for improvement. Only 10% believe that the current framework cannot be improved.

Spanish legislation is widely considered (69%) a guarantee of sufficient investor protection. Paradoxically, with regard to venture capital funds, the number of participants who consider that "yes" there is protection is the same as those who do not. 100% of participating law firms consider that the current legislative framework protects investors.

Results forecasts and the Alternative Investment Market

70% of those taking the survey consider it positive for businesses to provide results forecasts. Interestingly, law firms do not agree. According to Ignacio de la Torre, "Academic studies have shown that offering a quarterly results forecast is damaging, since it causes short-term decision-taking and leads to higher rather than lower volatility. However, not offering the market any kind of parameter on future results can lead to too great a dispersion of estimates and greater associated risk. The best solution seems to be to offer mid-term forecasts in ranges that allow for a certain amount of flexibility".

Finally, the report mentions the new alternative investment market (AIM), created by Bolsas y Mercados in 2008 for the listing of small-cap companies. Opinions vary: just over half of those taking the survey (51%) believe the AIM is an alternative to the continuous market and the remaining 49% do not. Professor de la Torre points out that, "a high percentage of the replies from venture capital funds, which own or hold shares in many of the companies that could be floated on the AIM, do see this market as a valid alternative for finance".