AIM Vs PLUS
Jon Card asks which market is best for the UK’s entrepreneurs
AIM appeared on the scene in 1995, it has been the champion of growing businesses in the UK. However, a mixture of tough market conditions, bad press and a rise in costs have led some entrepreneurs to conclude that it is past its prime. Meanwhile, a plucky young contender in the shape of PLUS Markets Group (PMG) seems intent on stealing AIM's entrepreneurial crown. “AIM isn't a small companies' market anymore, it is a brand that has global recognition,” claims PMG's Paul Haddock. “If you are looking to raise below £10m or even £30m, it isn't the right place for you.”
Haddock's not quite as quotable as Muhammad Ali, but this is fighting talk nevertheless. So is this new contender really ready to snatch AIM's crown?
AIM: The reigning champion
There have been some great entrepreneurial success stories on AIM – Majestic Wines, ASOS and The Clapham House Group to name but three. Offering lighter regulations – firms don't need three years of trading history in order to join – than the main list, it offered an opportunity to really aid UK plc.
There have been some impressive sums raised, while companies have used it to up their profile, formalise their operations and make headway towards a full listing. But has AIM become a victim of its own success?
Increasing internationalisation seems to be taking it away from the owner-managed home talent it was designed to serve. Meanwhile, Nomads, which police new companies' listings, have let a few bad apples slip through. Jai Bal, of law firm Farrer and Co, explains: “The decline has in part been caused by a number of high-profile failures, where basic due diligence had not been prepared. This has led to a tightening of the AIM regulatory regime.”
The growth of the market has also led to an increase in the costs of an initial public offering (IPO), and a lack of visibility has put some smaller companies off.
PLUS-quoted: The Contender
In late 2006, PMG re-branded its Ofex market renaming it PLUS-quoted. It been busy building its credentials ever since. Last year, it gained Recognised Investment Exchange (RIE) status, placing it on a level with other stock exchanges and opening up untapped pools of investment across Europe.
PMG is a triple-headed beast comprising PLUS-quoted, listed and traded markets. If you float on the market, you'll become a PLUS-quoted company, although you can also access other markets via the PLUS-listed exchange. Businesses on other markets, such as AIM, can also have their shares traded on PMG if they sign the paperwork. However, PMG is hopeful that later this year AIM companies could be automatically traded on its exchange. Currently, there are about 400 PLUS-quoted companies.
Much of the PMG team, including Haddock, used to work at AIM. There are inevitable comparisons in terms of regulations and legal frameworks, and some are hopeful that PLUS could emulate the AIM of the early days. “PLUS has a real opportunity to become a champion of entrepreneurial businesses in the UK,” says Richard Metcalfe of accountancy firm Mazars, which advises companies on both markets. “If it offers what AIM was offering when it started, it could be a great market.”
But PLUS is keen to avoid AIM's mistakes in terms of permitted companies. Haddock says that PMG turns down businesses deemed unsuitable and doesn't rely entirely on its corporate advisers as AIM does its Nomads.
Youth Vs maturity
There are about 1,700 companies on AIM, some with market capitalisations well over £100m, and last year, when AIM was still busy, higher-profile companies were stealing the media limelight from smaller firms. But Metcalfe says this may have changed. “Now might be a very good time to float on AIM, because there is less activity, so you will be more visible,” he explains.
Visibility is one thing, prohibitive costs are another. “I expect the size of the market caps coming onto AIM to continue to rise as the growing cost of listing makes it less attractive for the smaller companies,” says Metcalfe.
It's hard to see how a business with a market capitalisation below £25m could be attracted to AIM as a growth market when, from £5m raised, about a fifth would be used on fees. In fact, some believe businesses need a market capitalisation as high as £50m to really make an impact. PLUS-quoted businesses are seldom this big, and many come on to happily raise £1-2m – something that isn't financially viable on AIM. But is PLUS-quoted really a place for ambitious companies?
The right class
Cost is often a key factor in flotation, particularly for smaller companies, and the comparisons between the markets in this regard support Haddock's comments about the unsuitability of AIM. An IPO on AIM won't be possible for less than £400,000 and that's without raising money. Many fundraising IPOs will actually take you towards the £1m mark. Meanwhile, an IPO on PLUS-quoted will cost £200,000-300,000, and a percentage of the money raised.
There's also an annual membership fee for both markets. For a UK company, PLUS costs about £6,000 per year, with AIM roughly £5,000. You'll also have ongoing fees for your advisers, which aren't cheap. The exact costs are negotiable and you should certainly shop around for advisers for either market. “Don't go with the first corporate adviser you speak to, talk to a few,” says Haddock.
There are many similarities in terms of professional help between the two markets. All AIM companies must use a nominated adviser (Nomad) that guides the company through the market. Similarly, PLUS companies employ a corporate adviser. Other familiar AIM characters, such as the broker, lawyer, accountant and financial PR are also to be found in relation to PLUS, and firms that offer services for one market are increasingly likely to provide them for the other.
Impartial advisers suggest that it is firms with market caps of lower than £30m, or that are looking to raise less than £10m, that should think again before going to AIM.
One of the main benefits of AIM is that it is a good place to raise money. AIM-listed companies are often very acquisitive as they can sell shares to raise money and offer their shares to vendors, giving them a quantifiable stake in the new business. Travelzest moved from Ofex to AIM in 2005, and has used the market in exactly this way, making 11 acquisitions since then. Its chief executive Chris Mottershead says the market has helped his company grow, but feels he joined just as the market started to weaken. “I think the AIM decline began happening around two years ago,” he says. “AIM is dependent on institutional investment. Many of these investors are looking for safer investments because of uncertainty in the marketplace.”
Certainly, there's been a decline in IPOs on both junior stock exchanges, although this is due to wider economic pressures, not the markets. Metcalfe thinks this is temporary, but asserts that people need to be realistic when forecasting a return. “Next year we should see a return to normal,” he says. “But I don't expect it will be back to the levels of 2004-2007, when there were several hundred floats a year. I think it will be more like 200. The last few years have been exceptional.”
The argument that if a company has a “strong track record, a quality management team and good growth prospects, then there's a very good chance it will raise the money”, still holds true, says Metcalfe, who adds that people shouldn't believe that there isn't finance available. “There was a big rise in the secondary market fundraisings last year, from £6bn to £9bn. So, investors are willing to invest on AIM,” he says.
But can PLUS really be a place to raise big money? Last year, AH Medical set a record, raising £13m in two tranches. However, PLUS companies tend to raise £1-2m. Like AIM, it is dependent on the backing of institutional banks and lenders, who have been sceptical in the past, but this could be changing. “Institutional investors don't seem to have wholeheartedly embraced PLUS,” says Bal. “But, due to the new management team and one of its other markets achieving RIE status, it is increasingly on investors' radar and we would not rule out a change in the mid-term.”
For some time, PLUS/Ofex was seen as a training ground for AIM, where a small cap could crystallise value in its shares, tighten its procedures and management and then proceed up to AIM once it had matured. “We were originally on Ofex and moved to AIM to get greater amounts of funding. Ofex could only offer us £1-2m investment and I don't think that has changed,” says Mottershead. Similarly, when Quercus Publishing joined PLUS, chief executive Mark Smith also had AIM in mind for the long term. “We have ambitions to achieve a £50m turnover in the next four years – I think AIM would be the right place to do that,” he says.
Understandably, PLUS dismisses this as a “legacy phenomenon” from its old Ofex days – and advisers agree. “PLUS shouldn't be seen as a stepping stone, as in many ways, it offers the same things as AIM. I wouldn't advise companies to go on to PLUS with a long-term plan to join AIM,” says Metcalfe.
And the winner is…..
AIM has taken a few knocks, but the champ is far from out. For UK entrepreneurs, it is still the first name they think of when considering an IPO, because, for ambitious companies, it is seen as a great place to raise money. It may have become too big and costly for smaller firms, but this is an inevitable consequence of its success and a sign of maturity.
Meanwhile, PLUS is driving expectations and market watchers say that it has much in common with AIM in the early days. But to really appeal to entrepreneurs, it needs to prove itself to be a reliable place to raise more than its usual £1-2m. To do this, the institutions need to throw their weight behind it. There does appear to be some movement here, and as it grows the momentum will encourage UK entrepreneurs that there is a realistic alternative to AIM. So you'd be advised to keep a watchful eye on this growing market.