The pros and cons of an AIM market listing
A quick look at AIM, London's junior stockmarket
Founded in 1997 as a ‘junior slopes’ stock exchange for fledgling Plcs, the Alternative Investment Market (AIM) has now established itself the world’s most successful market for young, fast-growth businesses. A flotation on AIM can offer huge benefits, provided your business meets the criteria demanded by the investment community.
Pros and cons
The primary reason for floating on a public market is to have access to cash. On average, companies coming to the Alternative Investment Market through an initial public offering (IPO) are seeking to raise between £5m and £10m. However, with institutions (such as the pension funds) now systematically investing in AIM, it is certainly possible for the right company to raise a lot more growth capital.
However, a public listing is about more than money. A place on the Alternative Investment Market will certainly boost your company’s profile. This, combined with the cachet associated with Plc (public liability company) status will give you extra clout in dealing with suppliers and winning new customers.
If you plan to go on the acquisition trail, a public listing will also enable you to use shares to buy other companies. Also important is the fact that publicly tradeable shares are much more attractive to key staff, if a stock option scheme is part of your salary and employee benefits package.
There are some potential downsides to consider. Running a public company is very different from managing a privately owned business. You will have to be prepared to comply with the governance expectations of shareholders and the demands of market regulators. And remember that a short term dip in performance can have an adverse affect on your share price.
Unlike the London Stock Exchange main list, candidates for the Alternative Investment Market don’t have to have a trading track record. However, in order to join you must appoint an AIM-approved nominated adviser, aka a NOMAD. There are dozens of NOMADs and they effectively act as gatekeepers to the market. They will help you prepare for flotation but it is also their job to decide on whether or not a company is suitable for AIM membership both as an investment proposition and in terms of the quality and integrity of its management. Without the backing of a NOMAD, your company will not be accepted onto the Alternative Investment Market.
In addition to a NOMAD, you will also need a broker, an accountant, a lawyer and a financial PR advisor.
None of this comes cheap. Joining AIM through an initial public offering typically costs between £400,000 and £600,000 a year, including adviser fees, while the price of membership comes in at around £100,000 per year. However, this is considerably less expensive than joining the LSE main list.
What should I do?
The support of investors is crucial to success on the Alternative Investment Market. the market has none of the technology bias seen on the USA’s Nasdaq but there are other criteria that investors are seeking. Generally speaking, investors want to back companies with growth potential operating in a clearly defined market. Your proposition should be simple and strong, the business plan should be clear and the management team demonstrably talented, which may mean strategically hiring a non-executive director with a reputation in the City and track record with public companies or success in your sector. In addition, AIM investors tend to be impressed by companies working in sectors where barriers to competitor entry are high.
Preparing for an AIM flotation can take anything up to two years and the likelihood is that the management team will need to be refreshed and restructured. Joining the market takes about 10 weeks, during which time your accountant will do due diligence on the business and the NOMAD will draw up an application. Be prepared to make a good few presentations – 20-40 – to investors.
This ‘beauty parade’ can be exhausting and demoralising as you face tough questions and deliver the same word-perfect speech time after time each day for a period of a week or so. Institutional investors will have had a procession of similarly ambitious companies through their doors all day and are often decidedly battle weary, so don’t be put off by seemingly dismissive demeanour. Those who have been through the experience find it notoriously difficult to determine which presentations have gone well and where they will receive investment from.
Once you have joined the market, the work continues. Investor communication is vital if you are to retain interest in your shares. You will need a corporate website and a retained financial PR company to make announcements to the City. You will also need to make regular efforts to return to investor shareholders and brief them on your performance against objectives and financial projections for the next period.
Information on NOMADs and AIM accountants can be obtained from the Alternative Investment Market. Visit the London Stock Exchange’s website at www.londonstockexchange.com.