London-based NEX is a minnow in stock market terms but will give Aquis, which can only trade shares listed on other bourses, an off-the-shelf license for a primary or listings exchange.
It has long been regarded as the “baby brother” of AIM, the bigger growth market run by the London Stock Exchange (LSE.L).
Aquis Chief Executive Alasdair Haynes said the intention was not to compete harder with AIM - where Aquis is itself listed - but to become a “disruptor” by developing a pan-European listings market using Aquis’ new European Union base in Paris.
NEX has 89 listings including Arbuthnot bank, Newbury Racecourse, brewer Adnams and English sparkling wine producer Chapel Down, with a combined market capitalization of 1.9 billion pounds ($2.38 billion).
“The immediate reaction that people have is that they look at NEX as the baby brother of AIM and that its big selling point is that it’s cheaper,” Haynes told Reuters.
“Cheaper is not the answer to all this. This is about process change that makes the market more efficient.”
The deal is due to be closed in the autumn, pending regulatory approval, and includes Aquis paying 2.7 million pounds ($3.4 million) to cover NEX’s working capital.
Independent financial research company Liberum said management expectations that Aquis itself will become profitable in 2020 were not changed by buying NEX, although NEX is forecast to lose a million pounds over the next two years.
“Aquis’ intention is to use its technology to enhance liquidity and so create a more competitive and attractive listing venue,” Liberum said in a note to clients.
A veteran of the exchanges world, Haynes helped to build the then Chi-x platform into Europe’s biggest pan-European stock trading platform and now known as Cboe Europe.
The EU is keen to create a capital markets union where small companies issue shares and bonds to raise funds rather than relying on bank loans, but progress has been slow at a time when many listed companies are going private.
One way of attracting more listings and liquidity onto NEX would be to allow companies to say that holders of shares are not allowed to lend them to hedge funds and others who short or take bets on a stock falling, Haynes said.
Additional reporting by Lawrence White; editing by Jason Neely and Alexander Smith