Andrew Williamson: As the recovery begins, Scots firms should look towards IPOs

REMARKABLY, ten years have elapsed since the dotcom collapse in March 2000, when the world's major stock markets went into freefall and hopes of a new internet-based economic dawn were swiftly crushed.

There had been a growing bubble of optimism and investors had been seduced by wild promises, often by companies that had not even delivered a working model of their product.

When the reality dawned that many new business concepts were little more than hot air, the major institutional and private equity investors swiftly exited the market. The real carnage hit private investors who had invested their cash in technology funds and trusts.

Anyone running a firm that made, distributed, sold, or serviced tangible products was left wondering if their business had become redundant.

Nothing was further from the truth. Fast-forward to March 2010, and the world has changed dramatically. The internet has blossomed into a major force with the value of sales rising year on year, and the launch of new internet ventures continues apace.

However, the days of pre-revenue tech companies receiving large cheques from private equity firms, then enjoying an exit to an over-subscribed IPO, have long gone. Instead, private equity and the public markets, like the banks, have reverted back to basics and are now looking for strong businesses, preferably asset-backed, with a strong track record.

Furthermore, they must have clear and reliable indications of growth and profitability in the immediate future. There must be a compelling reason to invest, and the fundamentals must be rock solid.

This is good news. The "casino" investment practices are gone and good companies should take heart from the old world reasserting itself – there is always an appetite and a home on the public markets for a sound business, well-managed and with a sustained history of profits.

The story of Scotgold Resources is an excellent example. Scotgold is the company behind Scotland's only goldmine, which very recently began trading on Aim. The company – which is already listed on the Australian Stock Exchange – had raised 704,000 as part of its flotation, which was over-subscribed and attracted a great deal of interest from institutional investors and private client brokers.

No-one would claim this as anything other than very small in terms of the market generally, and the resources sector in particular, but it has been a very successful IPO. Scotland will not only benefit from the wealth extracted from the ground, but also from the spin-off requirement for suppliers and even tourism.

Importantly, Scotgold is the first flotation (albeit a dual listing) of a Scottish business since July 2007 when i-design listed on Aim.

In recent years, Scotland has witnessed a gradual decline in the number of listed companies. From around 200 in 1990, there are now just 30 main market companies, with 20 companies leaving the market in the past two years.

There is unlikely to be a dramatic reversal in the number of listed Scottish companies, but that should not worry an ambitious, growing business with outstanding potential for further growth.

For the right business, an IPO remains by far and away the best and most appropriate strategy for growth.

A listing also provides hard-working entrepreneurs with a highly-efficient way of realising a good return on the investment they have made in time, money and effort to build an outstanding business.

In fact, with well-documented problems that businesses are having raising finance from banks and other sources, a listing offers a very real alternative to growing companies that are finding it difficult to raise funds that, two years ago, would have been relatively easy to secure.

As the recovery gathers pace – albeit a very slow pace – more and more businesses will be thinking about growth opportunities and the best expansion strategies.

All that glisters is not gold, but the successful listing of Scotgold Resources should encourage ambitious Scottish companies at least to explore the potential of the markets.

• Andrew Williamson is a corporate partner and the head of the Capital Markets practice of McClure Naismith LLP. He has advised Scotgold Resources since its incorporation.