London Stock Exchange’s Alternative Investment Market (AIM) has been around since 1995, but until a couple of years ago virtually was unknown in the US. Now, AIM is beginning to attract serious attention from US companies, with a record number of American firms considering as an alternative the AIM market as a means of raising capital. Just as we take our products international, why not take our capital raising international also?
AIM — the World’s Most Successful Growth Market
AIM is not just a market for IPOs. It also is a market where companies will come, to raise money. And about one-third of the total sums raised on AIM have been raised for secondary issues.
To date, 2005 was the largest year that AIM has experienced. In 2006, the number of IPOs tailed off towards the end of the year, as the market has dealt with a certain amount of indigestion. By the end of October 2006, 371 companies had gained admission. What’s very interesting in 2006 is that the average size of companies listing on AIM is significantly higher than in previous years. And so, they say in London that AIM is coming of age.
AIM: Key Statistics
- AIM Companies: 1,582
- Overseas AIM Companies: 286
- Capital Raised* Since 1995: US$68 Billion
- Capital Raised* in 2005: US$16 Billion
*New and Further
AIM, a growth company market, is set up with a new type of regulation, including a set of rules appropriate for assisting growth companies. Regulation is delegated to a group of advisors, investment banks, and broking organizations called Nominated Advisers or “NOMADS.” that are responsible for confirming the eligibility of companies on the market. NOMADS also ensure that companies maintain the highest standards of corporate governance appropriate for institutional and retail investment.
AIM Regulation Emphasizes Flexibility
While there is no minimum size, for an institutional IPO, something like $30 million probably is a minimum. Also, no trading record is required which means that companies can be dreamt up in the bath six weeks ago and IPO’d quite readily, if investors can be found to take them. In addition, no minimum numbers of shares is required to be in public hands, although it generally is recommend that for an institutional IPO; about 25 percent is a minimum level of shares to be in the public hands.
AIM’s Flexible Regulation: Admission Rules
- No minimum size for admission
- No trading record required
- No minimum amount of shares to be in public hands
- In most cases, prior shareholder approval not required for transactions
- Admission documents not pre-vetted by Exchange but by Nominated Advisor (NOMAD)
- NOMAD required at all times
What really assists AIM companies in their growth is the lack of additional documentation that must be supplied. AIM companies do not have to go back to shareholders unless they’re doubling their size through an acquisition. Also, they do not have to go to shareholders unless they’re disposing of more than 75 percent of their assets. And most importantly, if they want to raise more capital, they do not have to go back to shareholders — providing that they have the appropriate approvals in place.
Flexibility of Rules Equals Opportunity
In London, if an AIM company is competing against a listed company for the same acquisition target, the AIM company can move much faster. Plus, the target company may prefer going with an AIM company versus a listed company because of the significantly greater amounts of documentation that need to be produced and filed in dealing with a listed company.
One of the key elements here is that an AIM company is required to maintain a NOMAD at all times. Like any market, AIM does have regular, continuing obligations: announcements of price sensitive information are required; when appropriate, AIM has directors’ dealing rules; and semi-annual reporting is required. Most important, AIM company directors must accept full responsibility for complying with AIM rules.
AIM Rules: Continuing Obligations
- AIM companies must have a NOMAD at all times, otherwise they will be suspended from the market
- AIM companies must disclose all price sensitive information in a timely manner
- Half-yearly and annual report and accounts required
- All directors accept full responsibility, collectively and individually for the AIM Rules
- Restrictions on deals for directors and applicable employees on AIM securities during close periods
- UK Corporate Governance standards
If an AIM company is seeking institutional investment, then we recommend the highest possible standards, because institutions generally do not look at an AIM company in any way different from a listed company. They almost are market neutral. So, in London, this means going for the top level of corporate governance reporting, with corporate governance a matter of negotiation with a NOMAD.
The size of AIM companies tends to be significantly smaller than typical in US public markets. While a number of companies on AIM are over $1 or even $2 billion, the majority of AIM companies are very small. AIM also is a market which covers all business sectors.
AIM Places Your Company in an International Context
In fact, there are several excellent reasons for the high degree of interest in AIM today. In a relatively constrained venture market, AIM offers an interesting alternative to a second or third round financing. This is particularly true if your market is not well served by proximity to venture capital. AIM is not geographically constrained by the “two hour rule” which governs the thinking of much of the venture world.
Entry is relatively straightforward which is reflected in its associated timing — four months from beginning to end. A comparison might be the length of an average venture capital raise — nine months. Finally, there’s the high likelihood that a small company’s voice will be heard on an ongoing basis, post-listing. You stand a better chance of not being relegated to the sidelines by much larger, better promoted companies.
Why Choose AIM?
- The world’s most successful growth market
- An internationally focused, professional investor base
- Comprehensive research coverage for international companies
- A more flexible approach to regulation
- Better value than NYSE or NASDAQ
FOCUS Can Steer US Companies Through a Successful AIM Listing
US firms with market caps of $10-100 million can benefit by raising capital in London. To make the effort worthwhile, your company should have an equity value of at least 10 million pounds. Overall, while the AIM listing process is speedy and productive, it is not a bargain basement and your total costs will be not dissimilar to an assisted venture raise in the US.
As part of our Transatlantic practice, FOCUS has been monitoring the progress of the AIM market for some time. In the process, we have developed good relationships with a number of leading NOMADS and other service providers who cater to the AIM market. As a result, we have established an element of our practice in which we consult with companies at an early stage as they are investigating whether AIM is potentially a good fit.
As the listing process proceeds, we provide an interface between a company and various agents in the UK. The listing timetable is short and, as a corollary, it is intense. FOCUS helps to minimize the distractions at a critical time for your business.
To find out more about how FOCUS can help you in this undertaking, contact Gerald Turner, FOCUS Partner, in the Washington DC office at 202 470 1972 or via email at [email protected].
This article was originally posted by Adam Hart, Head of Business Development, KBC Peel Hunt Ltd.; and Gerald Turner, Partner, FOCUS Enterprises, Inc.
