 | |
When the AIM market was launched to a less than rapturous reception in 1995, few could have predicted the success it would go on to achieve in its first ten years. Although its reputation as a market for small companies looking for growth inevitably attracted technology companies in large numbers in the late 1990s, it managed to weather the storm when the dotcom bubble burst. It retained its credibility with investors and did not go the way of many of its fellow second markets.
One reason for its survival was its ability to adapt – moving away from technology companies and broadening its sector base, it has since seen resurgent growth. Looking back over the past decade, it is fascinating to see how the profile of the market as a whole (and that of a typical AIM-listed company) has changed – developing into the growing and increasingly-diverse success story that it is today.
The ninth ‘Taking AIM’ Survey (recently published by Baker Tilly in association with Faegre & Benson LLP) shows that AIM is now regarded as the most successful small to medium cap market in the world; over recent years, the number of institutional investors holding AIM investments has increased to the extent that now only one investment house does not invest in the market. AIM is no longer seen as a stepping-stone to the Main List but rather as a mainstream asset class in its own right.
The Survey highlights that this increased exposure to investors is still considered to be one of the main benefits of joining AIM, together with the credibility afforded by a listed plc status, a raised company profile, tax breaks and a lighter regulatory touch (than would be applied on other markets).
Dominic Wheatley of Bright Things plc (developer and manufacturer of the Bubble, a child-friendly device that transforms a DVD player into a games platform) highlights other attractions of AIM over the VC route in a case study for the Survey. He cites the ability to retain control and not be tied into the restrictions associated with VC funding as an influence in the decision to list on AIM.
“One of the great advantages of being on AIM is that it’s very flexible in terms of going back to shareholders, new or old, to raise more money. Sometimes with a VC he’s either going to penalise you when you ask for more money or he’s going to say no,” says Dominic. A further influence was Bright Things’ belief that AIM would afford it a better valuation than that proposed by VCs but without the associated cost of listing on the Main Market.
Recent admissions
AIM’s exponential growth is evidenced clearly by the number of recent admissions. The number of AIM-listed companies passed the magic 1000 figure in 2004 and continues to grow rapidly. In 2004, 355 companies were admitted to AIM (up from 162 in 2003) and this number was surpassed in the first eight months of 2005.
The Survey also identified that this growth pattern has been mirrored by the market’s continued diversification. As of 30 September 2005, there were 185 overseas companies listed on AIM and 139 had been admitted in the previous 21 months. This dramatic increase was fuelled, in part, by the introduction of the fast-track admission for companies listed on other recognised investment exchanges. That said, it would be foolhardy not to recognise that the AIM market’s growing internationalisation is also a result of its enhanced global reputation as the world’s leading second market.
As the market has grown, companies coming to it have found an increased capability to raise larger funds. Of those companies floated in 2004, which were interviewed for the Survey, most raised the funding that they had expected. On average, they raised £6.8 million compared to £5.1 million in 2003.
The sectors that fared best in 2004 were oil, retail, resources and business services but, across the board, there were substantial share price increases. The market capitalisation of the average AIM-listed company rose to £31.1 million in 2004 from £24.3 million in 2003 (by the end of the third quarter 2005, this had increased further to £38 million). Of those questioned, 72 per cent said that their share price in 2004 had met or exceeded expectations.
Such figures speak for themselves in attracting new applicants and investors alike. In 2004, a total of £4.7 billion was raised by AIM-listed companies, compared to only £2.1 billion in 2003 (£5.0 billion had been raised in just the first three quarters of 2005).
This growth was the catalyst for AIM (in conjunction with FTSE) to launch a new series of indices in May 2005. The previous AIM index had become unrepresentative of the dynamic and liquid nature of the market today - it is hoped that its replacements (the FTSE AIM UK 50, the FTSE AIM 100 and the FTSE AIM All-Share indices) will increase the visibility, trading volumes and liquidity in AIM-listed companies and makes a bold statement that the AIM market has ‘come of age’ with a bright future ahead.
In 2004, in order to fall within certain exemptions of the Prospectus Directive, the AIM market reclassified itself as an ‘Exchange-Regulated’ market. The purpose of this move was to reduce the impact of administratively burdensome legislation that would otherwise have been imposed on AIM-listed companies and those coming to the AIM market. Initial concerns, expressed in the Survey, as to the market’s subsequent credibility have fortunately proved unfounded and, although there was a rush by companies to be admitted to AIM before the new rules came into force on 1 July 2005, these concerns have not been realised and the market has continued to flourish.
The Survey shows that there had been much concern from respondents surrounding the regulation stipulating that if an offer was to be made by a company to more than 100 investors, a company would have to produce a full prospectus in compliance with the Prospectus Directive (with the knock-on timing and cost implications). It was unclear as to whether private-client brokers dealing on a discretionary basis were acting as one investor or whether one had to look behind the broker at the number of its individual clients. After much lobbying by interested parties, the position was clarified as being the former, meaning that most offers from companies looking to float on AIM (or AIM-listed companies looking for further fundraising) fell within the exemption from the Prospectus Directive, thereby maintaining the ongoing flexibility and relatively light regulation necessary for AIM to attract and encourage smaller, growing companies.
Since the Survey was published, the market has taken the changes in its stride. There appears to have been little appreciable effect on the number of proposed new applicants and the larger institutional investors continue to show an increased interest for the market. Now that the uncertainty regarding the Prospectus Directive has been effectively resolved, optimism for the year ahead remains high. If the current economic climate is maintained, AIM’s growth and the continuing favourable publicity will prompt most AIM-listed companies to expect continued improvement in the market.
As the law now stands, most companies coming to AIM are likely to fall within at least one of the exemptions to the Prospectus Directive. The expected timeline, from start of document production to admission, remains at approximately 12-16 weeks and associated costs are unlikely to have risen dramatically as a result of the recent changes.
In summary, respondents to the Survey reported that 2004 was an extremely successful year for AIM and that, generally, they were pleased with the consequences of being listed on AIM. At the time that the Survey was carried out, the experts’ main
concern for the future centred on the effect of the Prospectus Directive; now that is behind us, there appears to be a renewed appetite in the market and AIM’s
course seems set fair. VTR
David Davies is an associate in the London Corporate Group of international law firm Faegre & Benson LLP. An electronic copy of the 2005 ‘Taking AIM’ Survey can be downloaded at http://www.faegre.co.uk/articles/article_1611.aspx. If you require a hard copy of the Survey please contact Alison Boling at aboling@faegre.com or on 020 7450 4500.
|
