Just Eat and the High Growth segment

In February 2013, the London Stock Exchange launched a ‘High Growth Segment’ (HGS), as a complement to its Main Market. The suggestion was that it was intended primarily as a stepping stone to the main list for high-growth companies – i.e. companies growing at a compound annual rate of 20 percent for the previous three years – and was expected to attract medium-sized businesses valued at between £300 million (€363 million; $498 million) and £600 million. 

In April – more than a year later – HGS finally found its first taker: Just Eat, the online takeaway service majority-owned by UK buyout firm Vitruvian Partners and VC group Index Ventures. Just Eat sold just under a quarter of its shares at 283p when it priced on April 3, generating £360 million in proceeds and valuing the company at almost £1.5 billion – making it the biggest tech listing on the London market since before the financial crisis (and much larger than the sort of companies that had been expected to choose HGS). 

So why has it taken so long for a company to choose HGS? In theory, it has some obvious attractions – notably the fact that it only requires companies to list 10 percent of its shares, as opposed to 25 percent for a premium listing.  

“A club of VC owners aren’t always that excited about selling down 25 percent; they may still think there is more to be had from the business,” says Kate Ashton, corporate partner at Debevoise & Plimpton. “Also a lot of companies looking to list will have founders that are still around, who will want to retain an element of control. So opening up 25 percent of the company is not that palatable.” 

There’s also a practical issue: although selling a 25 percent stake is unlikely to be a problem for a private equity-backed business, it’s not always easy for venture capital firms (who typically hold much smaller minority positions) to meet that threshold. 

Another potential advantage is that HGS-listed companies have less stringent ongoing obligations than companies on the official list, according to legal sources.  

“In terms of the requirement for shareholders’ approval prior to transactions, the HGS is much more relaxed,” says Delphine Currie, a partner in King Wood & Mallesons SJ Berwin’s corporate group. “It’s far more attractive to growing companies, because they can make acquisitions and grow more easily without always having to go back to their shareholders.” 

However, for companies like Just Eat that clearly can sell as much as 25 percent, some lawyers argue that there’s no compelling reason to choose HGS. “Why not just wait until you are eligible for the premium listing?” asks one. “This is a launch-pad for a premium list. And there is additional cost when you do go to the premium listing, because you have to make a fresh application of all intents and purposes.” 

Still, the good news for the LSE is that Just Eat clearly could have gone for a premium listing – and apparently left both options open until a relatively late stage – but chose to go down the HGS route instead. That offers some hope that it won’t turn out to be the damp squib some have been predicting. 

“If a company is big enough, they will want to go to the main market rather than AIM these days, because AIM suffered some reputational damage after a few big failures,” says one corporate lawyer. “The HGS gives private equity firms another viable alternative.” 

That said, the real barometer of Just Eat’s decision – and thus the most significant consideration for others considering the HGS – will be its subsequent share performance.  

Unfortunately, it hasn’t gotten off to a great start: at press time, its shares were trading at 233p, which is almost 18 percent down on its listing price.