As it approaches its 12th birthday, this ‘junior’ market, the younger, more entrepreneurial sibling of the London Stock Exchange (LSE), lists about 1,650 companies. Businesses from all major economic countries plus many developing ones trade on it.
However, not all have been what they were cracked up to be and notable failures have led to some harsh criticism of this ‘under-regulated’ market. AIM has responded to the concerns over member quality by tightening up the rules that Nomads must follow. The new rules, announced in February, have also made it compulsory for AIM-listed companies to have a website, on which key documents regarding their AIM status must be displayed.
IS AIM RIGHT FOR YOU?
The market has changed considerably. It is now a place where investors can make serious money and businesses can raise big amounts, too. This has had the side-effect of driving up costs and smaller fi rms might find these to be prohibitive to a float.
You will also have to put more effort into your profi le because so many companies are now listed on AIM it is easy to get buried beneath the pile. Investors aren’t always enthusiastic about companies with a market capitalisation of less than £5m. Larger companies offer bigger returns, so the little guy has his work cut out when making a pitch.
Some of the companies on AIM are huge, with market capitalisations in excess of £100m. These seem likely candidates for the Main List, but as some have a trading history of under three years, they fail the LSE’s criteria. AIM’s attitude is you can list here, but once you have the necessary trading history you should move up. “There’s certainly been a shift in the kinds of businesses coming on the market and costs are creeping up as a result,” says Richard Metcalfe of AIM accountants Mazars. “If you are raising smaller amounts – less than £10m – then proportionally the costs are higher.”
A good trading history is clearly a big plus when you are pitching to the City. However, there are plenty of pre-revenue companies on AIM. These are usually raising money for ‘discoveries’, be it technological or natural resources. In such cases, the credentials of the board will come under scrutiny because they are more risky than companies that have already proven themselves to be profi table.
The process of floating on AIM is easier than on the Main Market and this has led to some unsuitable companies floating. Increased internationalisation has also caused a few problems and as a result some investors are now yearning for more home-grown talent. Jai Bal, partner at AIM law fi rm Farrer & Co, says UK companies are popular because some investors and advisers feel more comfortable with home-based opportunities. “If you are a UK company and have a strong story then people will bite your hand off to list you because you are from the UK,” he says.
ARE YOU RIGHT FOR AIM?
If you are looking to raise additional funds and wish to boost your public profi le then AIM offers both. It is a good place to raise cash and you might also be targeted by companies looking to sell, as well as those looking to buy parts of your business.
Dominic Berger, founder of £5.8m turnover business Venue Solutions Holdings, bought up an American- based business, Your Day Inc, following his company’s flotation in December 2005. He feels that being on the market makes it easier to buy. “AIM makes you more attractive to other companies looking for mergers and acquisitions,” he says. “We now see opportunities in the market we wouldn’t otherwise have seen. There’s a perception that you have the financial muscle to make acquisitions.”
However, not everyone is suited to AIM and some companies should count themselves out from the start. First up, it is a public market, so like any other stock exchange, it is not a place to be if you want to remain circumspect. Discussions with investors and journalists and any other interested parties are a part of being listed and you simply cannot afford to neglect your public persona.
“I probably spend about one day each month talking to journalists and about two weeks each year on face-to-face meetings with investors,” says Elizabeth Gooch of AIM-listed operations management company eg Solutions.
If you are used to operating in a lowkey way, only answerable to yourself, this will be a sea change in your modus operandi. “PR is something you have to do,” Gooch asserts. Therefore AIM is no place for shrinking violets.
You must follow rules when listed and entrepreneurs can find these frustrating and constraining. For example, you cannot reveal all details of your company all of the time – there are non-reporting periods when you cannot speak to the media. In addition, you can only disclose details to investors that are ‘material’ and not tell them about speculative deals, and if you are under-performing, it pays to be open and honest with shareholders.
“It can be really frustrating taking criticism from investors when you know you are waiting for a deal to come through but you aren’t allowed to say so,” Gooch warns.
As a result, other options besides AIM may prove more suitable, such as a float on PLUS where the costs are far lower. PLUS may also be a place to prepare for AIM – there are plenty of cases of companies starting there and moving up.
Another option is to look for private equity funding. “On AIM, you will spend a lot more time and effort with rules designed to protect investors,” says Tony Edwards of law firm Stephenson Harwood.
“Things can be a lot more predictable with a VC, although that is not to say it is a walk in the park – things can get pretty heated. It’s just that if things are going wrong, then it is just between the two of you.”
GETTING INTO SHAPE
Glossary
IPO Stands for Initial Public Offering otherwise known as floating
Ticker Abbreviation of your company name for use on the market
Reverse takeover The purchase of a listed company by a non-listed which enables the company to fl oat Placing The sale of shares to the institutions and your broker’s clients rather than the general public
Ordinary shares The most common share. Ordinary shares in a company are always equal in price
Long-form reports Detailed report of your company’s fi nancial position
Your advisers
Nomad
Short for nominated adviser. This is a firm or company, often a bank or accountants, which is responsible for your introduction to the City. It recommends you and is your chief connection to the market. Nomads are a legal requirement and if they resign or are sacked, your shares will be suspended.
Broker
The market maker. Brokers act as go-between for buyers and sellers of your shares and are a major influence in the valuation of your business. They also help prepare your business for when you go out to meet the City and will accompany you on those outings.
AIM accountants
These are far more than standard number-crunchers and will be involved in providing you with business advice to ensure that your company’s reporting is in order.
AIM lawyers
They will inspect your contracts (premises, staff, orders, equipment etc) and write a report of their contents. They will also provide advice as to what the City will and won’t like and offer remedies.
