The merits of an IPO on London Stock Exchange’s AIM
Entrepreneurs and experts debate the value of floating their businesses on the London Stock Exchange's junior slope...
Floating on AIM is like having kids. You know very little about it until you have one. But then why would you? Entrepreneurs are focused on growing their businesses quickly until the time comes to take their ‘offspring’ on to the next ‘life stage’. However, like parenthood, if you’re going to take the plunge, you need to get up to speed quickly.
The entrepreneurs discussing AIM here are either about to float or are seriously considering it, while leading business advisers Wingrave Yeats stoke the debate about the merits of floating, what can be achieved and the right time to do it.
Is AIM an exit route…?
Spotting a gap in the marketing services market, Mark Roy set up The REaD Group with just £25,000 of his own cash. It’s now the industry recognized expert in data asset management, counting 750 of the UK FTSE 1,000 among its clients. Roy is concerned about the impact floating on AIM may have on his exit strategy. “My key goal is to maximize shareholder value,” he says, “but I also want to exit by the time I’m 50 in three years’ time. Is AIM a possible route?”
The co-founder of desserts business Rhokett and modular rooms builder Barker MCT, Peter Le Voir, is considering floating both his companies. Answering Roy, he says: “We’re evaluating possible exit routes in the early to medium term, of which AIM might be one. I know someone who floated and then sold out, achieving a higher multiple on the trade sell because it was open to everyone else. So I see the market as both a capital raising exercise and an exit.”
Award-winning business adviser Christopher Jenkins, co-founder of Wingrave Yeats agrees, saying: “To get the best value, raising your capital through the market and using it as a window is a great model.”
“And you can get a premium on it,” adds Sarah McVittie, chief executive of ‘mobile find’ service company Texperts, formerly known as 82ASK, who’s looking at AIM as an option to raise capital to grow her business without the constraints of the venture capital community.
Meanwhile, Jenkins’ colleague Trevor Roberts cites historical evidence. “There are around 1,600 companies currently listed on AIM,” he says, “yet some 2,500 have floated since it launched. Of those missing 900 companies, some have failed or moved up, but many have been bought out. So there probably is exit potential there.”
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… Or is it just the start?
Paul Broadhurst is founder of telecoms supplier Technetix, which increased its turnover from £38m in 2006 to £48m last year. The last thing he’s thinking about when considering AIM is exiting his business.
“I don’t see AIM as an exit, but as a start – people are putting money into the business so you can make it work,” he says. “With most flotations, there are lock-ins for key directors, and the reason I’m interested in AIM is because I don’t want to leave the business.
“I’ve looked at other ways of doing things, such as private equity, but AIM is the best way to get value, medium to long term, if you’re a growth business.
“Technetix is growing very quickly, and I do what I enjoy,” Broadhurst adds. “AIM meets the needs of what I want in terms of balance of control versus risk, compared with private equity, so it’s the right route for me.”
However, Tim Clyde, founder of advertising and production company the minimart, wants more say in who’s investing than he believes AIM can offer. “I feel floating is wrong for us,” he says. “For people who are financially based, business tends to be a means to an end. Others, like me, however, love the business itself. If I wanted to build an empire, I would go to AIM, but I think it would be much better to get investment from people who understand my business.”
But for Chris Thomson, chief executive of digital screen media company Ashingo, who has a proven track record across a broad range of businesses, it’s not so much who, but how much.
“As a mechanism for raising money, then going back and raising more money; as a way of playing with differentials and multiples, for using your paper for acquisition and aggregation (which is our agenda); and as a window for going up for sale, I’m persuaded by AIM,” he says.
The right valuation
If you’re planning to list on AIM, preparation is key, as getting it wrong can be very expensive. “One of the problems with AIM is that you’re in the public arena, and if you mess up, you’re punished very severely, so you might spend your nights in tears wondering why you went on the public market,” says Thomson.
Meanwhile, Roy has already been burned once and doesn’t fancy it a second time. “I was going to go on AIM, but then stopped. The timing and the numbers just weren’t right,” he recalls. “Our advisers were pushing for us to float and we’d already spent £200,000 on it.
But friends in the City said the market wasn’t looking great and one very experienced non-executive director said if we were in doubt, we shouldn’t do it.” Although REaD lost money, it was a fraction of the £750,000 floating would have cost it.
“That was a very brave move,” says McVittie, “but what kind of valuation and market capitalisation does a company realistically need before joining AIM?”
“Well last week I met up with eight people who had floated and the same question cropped up,” answers Jenkins. “They all agreed on a £50m market cap, below which they claimed that businesses would have real problems. There are no hard and fast rules, but if you’re below this figure people don’t really look at you.”
Surprised Roy asks: “But surely there can’t be many companies on AIM with a market cap above £50m?”
“Probably less than 25%,” replies Jenkins. “Those who suggested that figure all run good businesses. However, most had a market cap of less than £50m and were complaining about the illiquidity of their shares.”
So could this factor deter any of the entrepreneurs gathered from listing on AIM? “If our particular business proposition cannot attract enough attention at a sub-£50m market capitalisation,” says Thomson, “then we may not go to market that way; we happen to think it will be taken seriously, and that we should get it away.”
However Broadhurst says you can grow when you’re on the market. “It would be interesting to know how many floated at £15m, then raised more money while listed on AIM,” he says.
It would also be interesting to catch up with the same entrepreneurs next year to find out how their views about AIM have changed and who’s actually taken the plunge.
Views were expressed at a lunch sponsored by leading mid-tier accountancy firm Wingrave Yeats.