May 2014 Issue
AIM had been diminishing in size since hitting a high of 1694 companies in 2007. In 2013, the number of companies on AIM increased for the first time in six years following a flurry of initial public offerings (IPOs) and fewer companies leaving the market. There were 69 admissions to AIM in 2013 raising a total of £1.17bn, a 65 percent increase on 2012 and the highest value since 2008, according to figures compiled by US accountancy firm UHY Hacker Young.
The number of companies delisting from AIM fell to 75, its lowest level in seven years and 25 percent fewer than in 2012. The number of insolvencies among AIM companies is also at its lowest since 2007. In 2013, the 20.3 percent increase in the AIM All-Share Index outperformed the 16.7 percent increase in the FTSE All-Share Index.
Reasons for AIM success in 2013
The three main reasons for the success of 2013 for AIM are the global economic recovery, the highest levels of consumer confidence since 2007, and the recent tax changes that make AIM securities more attractive to retail investors. In August 2013, AIM securities became eligible for ISAs for the first time and, from April 2014, trading in AIM securities will be exempt from stamp duty. Following the abolition of stamp duty, investors in AIM securities will be able to avoid capital gains tax, income tax, inheritance tax and now stamp duty.
A number of larger IPOs on the main market may also have contributed to greater market confidence and these conditions are set to continue with recent IPOs including Poundland and Pets at Home. Fashion retailer Boohoo.com joined AIM on 14 March 2014 with an IPO that raised £300m via the placing of 600 million ordinary shares with about 70 institutional investors. The retailer’s shares jumped as much as 70 percent on its first day of trading giving it a market capitalisation of about £850m. This is compared with fashion retailer ASOS, AIM’s largest company, with a market capitalisation of over £5bn.
Interestingly, 2013 saw a move away from AIM’s past focus on natural resources to a broader range of sectors, particularly technology. Analysts say that this has been brought about by a shift in the attitude of institutional investors away from their traditional conservatism towards innovations in technology. Of the 36 technology groups listed on the London Stock Exchange last year, all but one listed on AIM. Along with consumer services and oil and gas, the technology sector raised over £100m from primary issues in 2013.
In 2012, resources accounted for almost half of the £2.4bn raised from secondary issues whereas the fundraising in 2013 was spread across a wider range of sectors with each of technology, oil and gas and financial sectors raising over £500m. The average market capitalisation of an AIM company rose by approximately £14m to around £70m in 2013. When compared with the average market capitalisation of about £34m in 2003, the trend towards larger and more established companies joining AIM is evident.
Advantages of an AIM listing
So why admit your company’s securities to trading on AIM? The four main reasons are typically to raise capital by listing on the London Stock Exchange in order to offer shares to the public; to increase the profile of the company; to allow shareholders to realise the value of their shares; and to develop an exit strategy.
Some are attracted to AIM as an alternative to the Main market as the eligibility criteria for admission to AIM are more relaxed than for the Main market. Unlike a main market listing, there is no minimum market capitalisation or trading record requirement for admission to AIM. This is because AIM was originally specifically designed for smaller, growing businesses. AIM lighter regulation also offers significant advantages to listing on AIM compared to the Main market.
If your company is considering an AIM listing, the management team must be aware of the implications. They should bear in mind that the admission process will inevitably take up a large amount of management time at significant cost to the company. Following admission, the company will be subject to additional and ongoing regulatory obligations and these too will have cost consequences. The directors will also face increased duties and obligations as a result of admission. Before commencing the admission process, the management team should consult legal, financial, accounting and broking advisers to ensure that they fully understand the processes involved.
Preparation is key
Significant preparation and extensive due diligence is required before an IPO. A company seeking an admission to AIM must comply with the AIM Rules for Companies. In particular, it must appoint and retain a broker and a nominated adviser, who will assess the company’s suitability for admission, throughout the whole process. It must ensure that its shares are and remain freely transferable and admit all, and not just some of, the shares in particular class. This may require the company’s articles to be amended and any shareholder agreements to be terminated.
The company must also be a public company. If it is not, it will have to re-register as such. Unless it is following the fast-track admission procedure, the company will need to produce and verify an admission document. In preparation for admission, a company will undergo extensive legal and financial due diligence which will form the basis of the admission document.
Bear in mind there are also ongoing requirements. While a company’s securities are admitted to trading on AIM, the company must comply with the Governance Code for Small and Mid-Size Quoted Companies and the continuing obligations set out in the AIM Rules for Companies. These include ongoing disclosure requirements in respect of price-sensitive information, changes to the shareholding of significant shareholders and certain corporate transactions to name but a few, and financial reporting obligations.
AIM companies are required to produce annual audited accounts and half-yearly financial reports. Failure to comply with the AIM Rules for Companies can have severe consequences. The London Stock Exchange can issue the company with a warning notice, fine or censure the company; publish the fact that the company has been fined or censured and the reasons for it; or cancel the admission of the company’s AIM securities.
Matthew Martin is a partner at Penningtons Manches LLP. He can be contacted on +44 (0)20 7753 7521 or by email: matthew.martin@manches.com.
© Financier Worldwide
BY
Matthew Martin
Penningtons Manches LLP