The AIM market: Getting fit for IPO
Our business panel talks Alternative Investment Market motives, suitability, assembling a board for public life and the sting in its tail
After two or three years of super-bouyancy, the Alternative Investment Market (AIM), London’s junior slope, has experienced a period of relative stagnation, with its lighter touch regulation hardening and some fund managers curbing their enthusiasm.
Nevertheless, its gloss remains lusty enough to interest the seriously ambitious.
A reason for floating
You need a motive, though. Ron Petersen is now chief executive of Swansea-based pulse light device business CyDen, having run a handful of London Stock Exchange and Nasdaq-listed companies and taken another to AIM as non-executive chairman. CyDen appears destined for a listed marketplace. For a technical business, access to capital and the ability to return for more is the obvious motive. As the founder of private equity firm Longbow Capital LLP, which secured £1.9m from around 30 private investors in 2004, followed by a further £1.3m in 2006, the path is something of a necessity, you’d imagine, to secure the required exit for the company’s stakeholders.
Sue Cuff, chief executive of Flexworks, continues to weigh up flotation or a trade sale. Having co-founded Best International in 1998, which grew to £100m in revenues in little over a year before being sold in 2003, she’s no stranger to creating an exit. Equally, she knows public life having helped take IT recruitment firm Computer People (now part of Adecco) to the London Stock Exchange in 1987.
David Page has been to AIM before, floating Clapham House Group and raising £25m in the process. This enabled the former Pizza Express boss to acquire a number of restaurant chains, including Gourmet Burger Kitchen and Real Greek. The leader of the circa £50m turnover business now has another shell he’s looking to reverse onto the market.
For Jamie Murray Wells, the youthful founder of Glassesdirect.co.uk, an online rival to high-street majors such as SpecSavers, it all seems part of the natural evolution. And having taken on angel investment and been courted by venture capitalists, going public would appear a near-inevitability. The heady cocktail of exit, finance and profile reoccur whenever you’re speaking to prospective AIM companies. For those thinking of going to the market, at least one of the three should feature prominently.
Is your company suitable for AIM?
Beyond a clear motive, the question of suitability becomes paramount. So what constitutes an unsuitable business for AIM? “If you come to the market and the company is still developing and you have a bad year or bad set of results for whatever reason, the market can penalise you in terms of share price and attitude to it,” explains Jeff Keating of market NOMAD Teather & Greenwood. “Some companies come and are completely over-optimistic in terms of their growth prospects and profile expectations. There’s also quality of management. These are all reasons why businesses don’t work or don’t fulfil their plans.”
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The problem is, adds Keating, that the bouyancy of AIM has attracted all-comers, with many circumventing traditional earlier-stage sources of finance. “In a lot of cases it’s easier and less painful, at least initially, than it is dealing with a private equity house. But getting on the market is just the start, not the end result.” And it can be an unforgiving environment.
Is your business management right?
To be successful, you need to understand the nuts and bolts of your business, what goes on with suppliers and customers day-to-day. This seems at odds with maxim that you should spend more time ‘on’ the business than ‘in’ it. But there’s clearly a happy medium. The successful chief executive of an AIM company remains well tuned-in to the grassroots and is managing the managers and lines of communication.
Clapham House Group’s Page says the market and fund managers expect a level of integrity. “We spoke to someone who thought a reverse was an easy way onto the market. He struggled because he was only a pimple-covered 25-year-old,” says Page. “We knew the City wouldn’t like him.”
Conversely, there’s no point appointing a Lord or a Sir because you feel it adds credibility to the board, according to Keating. Credibility and an understanding of how the City works matter, but ask yourself about the real value they’ll add as the business develops.
CyDen’s Petersen argues you shouldn’t spend too much time fretting over hired-in hands. “The composition of the management team is more important than the board,” he says. “If you’ve got a good balanced board with outside influence, some independence of view and some experience to bring to the table, all those things are great. But if you’ve got a management team that doesn’t have the skills, route to market and technical know-how, it’s not going to succeed.”
How tough is the AIM process?
Once the team is right – or close – you start the potentially arduous process. Stories of mountains of paperwork and distractions from the running of your business are legion. Is it as tough as all that?
Petersen, who boasts extensive experience, thinks, against going public on AIM, the private equity investigation of a business when raising venture capital is “much more diligent, much more searching, much more difficult. And if you survive that…”.
Mike Smart, managing director of software business Gowi Group, which pulled an AIM-listing at the last moment when the market turned, and subsequently merged with another in its sector, agrees that VC testing of the commercial model is intense. However, he says Petersen’s view fails to take into account the company statutory expectations and the legal box-ticking of AIM. Again, Smart’s been through both, having raised £4m via high net worth individuals to fund acquisitions before looking to AIM.
When Page was part of the Pizza Express team that sold around a third of its equity to US shareholders in the early 1990s, he was shocked at the rigour of the Americans. “The amount of analysis and programme testing was enormous, whereas here in the early 1990s it was ‘he’s a good chap’. I guess that’s because regulation is 10 years ahead of what it is here.”
In the intervening period things have changed. “The quality of the research has improved enormously,” adds Page. This is largely down to the shift from AIM being a private client market, one dominated by individual investors before the Millennium technology boom, to one dominated by financial institutions since. And with the Financial Services Authority tightening up on the regulatory side, it appears AIM now represents as big a challenge for smaller cap businesses as ever. But what’s life without challenges?
Views within this article were expressed at a lunch sponsored by specialist AIM law firm Farrer & Co.