Finding Quality Capital for Business Expansion

Business leaders and entrepreneurs of companies are frequently tested by the ongoing shift of customers’ preference.  Whether it is change in economic climate, business interruption or natural disasters; such evolving shift in business climate demands companies to question their products, services, sales, marketing, operations, technologies, talents, risks, and finance.  The vast weight on leaders to define the right balance on essential elements to achieve success, which requires astonishing focus and execution.

To achieve success, leaders are accountable to deliver value to its stakeholders and shareholders. To grow a company, management regularly battled with ideas to either enlarge the company through merger, acquisitions, new market entries and/or extend new product lines. Any of the expansion considerations demand substantial capital commitments. Therefore, company needs a strong balance sheet to support such expansion strategy. If there are any hinders to the company’s balance sheet, company can explore supplementary financing options, such as banks, private equities and/or private investors.  Depending on the company’s financing decision, if not caution, the cost of capital can be expensive.

In instances when business leaders are compressed with financing options to meet its business mission, naturally they turn to easy capital at high cost. Unintendedly, a short sight decision can potentially be costly to the company’s long-term value creation. Some might turn to financial institution to secure a credit facility with high interest commitment or a convertible debt with unfavorable terms to meet immediate needs, if not careful, both options can damage the company’s fragile balance sheet and destroy long term value creation.  Companies in the healthcare/biotechnology and innovative technology sectors are frequent confronted with such adoptions.

Consequently, a well-designed financial planning can enhance the company mission and balance sheet.

Why Should International Companies Seek US Listing?

For international companies, ADRs is one of the important tool kits in finance that might be overlooked by business leaders when it comes to financing. The concerns of U.S. listings are generally the fear of the unfamiliar, rigorous regulations and costly process to raise capital are the common theme that cast doubts by leaders to seek U.S. IPO or listing.  Doubts are natural. All those doubts can be alleviated with the proper compositions of talents and experts who understand the global capital markets. Acquiring such talents and experts can springboard the company to accomplished a US IPO and listing. 

U.S. reputability remains as the most liquid market globally.  International companies chose U.S. market for IPO or listings are driving by number of benefit factors.

Benefit Factors:

• The ease of capital access outside home market
• Diversify shareholder base
• Secondary market liquidity
• Brand visibility
• Commercial expansion – market entries
• Facilitate M&A activity through the use of ADRs as acquisition currency
• Retain and hire employees
• Currency and political stability

Even at tempestuous time, U.S. market is resilient during volatility, by maintaining an open market in full operation. Closing the stock market could trigger events harmful to investors. In the advent of advance of market structure, the market provides breadth and depth of trading activity when most needed by investors.  This process is critical to ensure companies’ stakeholders and shareholders can seek immediate liquidity if one wish to fulfilled to meet emergency needs.

Today, 675 international companies listed in the U.S. market are benefiting from the key factors described.

In one example, Galapogas NV, a Belgium biotechnology company which engages in the identification and development of small molecule and antibody therapies. Galapagos IPO on the Euronext backed in 2005, the daily average trading volume was fewer than 10,000 shares in the home market. The company decided in May 14, 2015 to complete an IPO in the U.S. and raised $241.6 million USD by offering 5.7 million shares on Nasdaq [Ticker: GLPG]. Galapogas shares listed in the US currently traded roughly 225,000 shares on average daily volume, averaging ~$43 million USD daily value. The stock price went from $42.05 in May 14, 2015 to $193 as of March 31, 2020. This is one of the many examples of an ADR benefiting an international company’s having a listing in the US market.  Since listing, Galapagos benefited from Gilead’s investment of holding 25% of the company in 2019 and drug development partnership; Received transparency notification from Wellington Management; Ability to partner with Gilead to submits new drug applications to U.S. Food and Drug Administration.

Why U.S. investors like ADRs?

The current market efficiency in advance technology and regulatory framework empowers investors to quickly assess to investment decisions. In 2019, the total trading value of all ADRs exceeds $3.3 Trillion in USD.  The trading value represents large number of institutional and retail investors in the US, such as pension funds and mutual funds companies are making substantial investments into international companies via ADRs structure, as a mean to diversify their portfolio holdings and concentration risk. As of 2019, roughly $1.1 trillion in USD by valued of DRs are held amongst the top funds, Capital Group, Blackrock, Fidelity Fisher Investments and T.Rowe Price, just to highlight few.  Some of the key considerations of US investors prefers to invest in non-U.S. companies are as followed:

• Globalize/diversify investment portfolio
• Trade (liquidity), clear and settle according to U.S. conventions
• Eliminate cross-border custody/safekeeping charges
• Receive dividend payments in USD
• Compliance with U.S. regulatory requirements
• Information disclosure and communication in English

Deltec’s Heritage of Innovation:

Deltec Corporate Advisory practice is traced back to our prominent founders’ DNA in 1946, with Clarence J. Dauphinot, Jr. and associates, Earl Elrick and Angus Littlejohn, moved to Brazil to explore banking and direct investment opportunities. Our founders brought the first Brazilian company to be listed on the Brasil Bolsa Balcao S.A. to help finance expansion. 

Our global experience team are dedicated in servicing the financial journey by helping entrepreneurs, emerging companies, corporates, and families succeed. 

At Deltec, we understand the “biomarker” for IPO and ADR listing. Our goal is to partner with the right company to provide clarity to the unfamiliar for the IPO/Listing process, to be eligible for listing on the NYSE or on Nasdaq. This enable international companies seeking US IPO/listing by saving cost, and time. Furthermore, our global network of investors access, and banks are equipped to supports companies to succeed.