AIM is the world’s fastest growing and most successful public market focused on servicing the financing needs of small and mid cap companies from around the world. There are now more than 1630 companies that have listed on AIM raising $77bn with the combined market capitalisation of AIM
now in excess of $177bn. In both 2005 and 2006 funds raised on AIM even surpassed that on NASDAQ, further highlighting AIM as an attractive place for some of the world’s most exciting growth companies to raise capital and thrive.
AIM’s success can be attributable to a whole host of different and often unique factors:
- AIM is a well backed exchange
- Strong institutional investor base
- Funds raised accelerating
- Critical mass of UK and international companies
- Trading liquidity improving
- Market cap of constituents growing
- AIM is well represented across all sectors
- Favourable regulatory environment
- AIM 1995 versus now
- AIM versus NASDAQ
London has become the leader in international equity assets under management with over $7 trillion based in the UK. This compares to c.$3 trillion in New York and Boston and under $1 trillion in Chicago. European equity assets under management in London is more than that in Paris, Frankfurt, Stockholm, Amsterdam, Milan, Brussels, Madrid and Luxembourg combined. This exposes companies listing in London to a very large pool of potential capital. Unsurprisingly, this makes London a highly attractive IPO destination and in 2006 the London Stock Exchange (LSE) accounted for over 70% of all IPOs in Europe with 80% of these listed on AIM and only 20% on the LSE Full List.
Strong institutional investor base
The acceleration of exciting growth companies coming to IPO in London continues to attract a growing number of sophisticated institutional (general and specialist fund managers, venture capital trusts and hedge funds) and private (private client brokers and high net worths) investors that focus exclusively on small and medium sized companies. In fact, over 320 UK based institutions now invest in AIM and account for nearly 60% of the market value – up from 35% in 2003 (Growth Company Institutional Survey). This is important as it enables companies joining AIM to tap into significant capital while simultaneously geting on board a high quality institutional investor base from an early stage. The big institutional investors in AIM are familiar names, many of then representing substantial US money:
The amount of funds being allocated to companies on AIM has accelerated in recent years as AIM’s broking infrastructure and reputation matures. Not only are more funds being committed to new companies looking to IPO, but importantly existing companies are increasingly returning to the market to raise additional growth capital or effect exits for early investors. Over the past decade small cap growth companies have raised over $77bn on AIM. Interestingly, over the past two years AIM has also raised more capital for new companies joining. In 2005, 126 companies floated on NSADAQ raising $12.3bn while on AIM 378 companies were introduced raising $12.8bn. In 2006, NASDAQ's 148 IPOs raised $14bn compared to AIM where 235 IPOs raised $19.6bn.
Critical mass of UK and international companies
AIM has now developed into an exchange with proper critical mass, in terms of companies listed, in the last few years. From just 10 companies in 1995 there are now in excess of 1630 companies listed on AIM with over 600 arriving in the last two years alone. In part this has been boosted by the growing number of international companies now choosing to list on AIM such that over 30% of AIM's constituents are now from abroad (including foreign companies that incorporate in the UK at IPO). It has even been helped by an increasing number of companies that have actually de-listed off the main Full List exchange to move over to AIM to benefit from it's attractive regulatory environment:
In addition to the growing of capital dedicated to AIM and quality broker research, even for small cap companies, the LSE has introduced a number of additional initiatives to help improve trading liquidity on AIM:
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A family of indices – The introduction of the FTSE AIM 100, FTSE AIM All Share as well as 30+ sector indices has attracted institutional investment.
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SETSmm – An electronic order book has been introduced to provide continuous liquidity through dealers. The evidence has been compelling with stocks that have moved to SETSmm seeing a material increase in daily trading volume.
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Financial news vendors – All major information vendors such as Bloomberg and Reuters provide AIM prices and trading information.
These factors have combined to drive a significant improvement in the daily and annual trading liquidity on AIM in recent years:
Market cap of constituents growing
As AIM expands, the average size of companies listed is growing reflecting both the greater appetite for more developed companies as well as the successful growth of those companies that are already listed. International companies have tended to be larger in size with an average market capitalisation in 2006 of $175m, partly reflecting the spate of investment funds that have raised significant amounts.
AIM is well represented across all sectors
Unlike the tech-centric NASDAQ, AIM is a far more broadly represented exchange with investors willing to back companies across the entire spectrum of 32 sub sectors:
Investors also have a clear preference for the sectors in which they like to invest. The Financial Village AIM Investor Survey 2006 demonstrates which sectors are currently in favour:
Favourable regulatory environment
Regulation is determined and set by the London Stock Exchange(LSE) rather than an independent body. Furthermore, the LSE outsources regulation to the NOMADs which allows for a far more streamlined IPO process. A NOMAD is required at all times otherwise the stock is immediately de-listed.
Some of the key characteristics that underpin AIM’s attractive regulatory profile include:
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No trading record required – Funds and start-ups can IPO immediately.
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No minimum public shares required – Stocks can be introduced to AIM without a public offering. In general however, the greater the free float the more attractive it is for institutional investors.
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No minimum market capitalisation or fund raising – Even the smallest of companies can raise money on AIM.
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In most cases no prior shareholder approval is required – Deals can be done quickly, improving the competitive advantage particularly in auction situations.
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Admission documents are vetted by a NOMAD not by an independent body – The admission document is less comprehensive than the SEC registration helping to make listings a faster and easier process.
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Only half year and full year reporting is required rather than quarterly – Less management distractions than with the ongoing disclosure requirements in the US such as 10-K, 10-Q and 8-K.
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Reporting can be done in a number of standards – The ability to report in UK GAAP, US or Canadian GAAP or IFRS further reduces disruption to existing practices.
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Denomination flexibility – Companies quoted on AIM do not need to have their securities denominated in pound sterling. There are numerous dollar and euro denominated stocks.
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Fast-track option for international companies – The admission process for international companies can be accelerated if they have traded for 18 months on certain major markets (including the Toronto, NYSE and NASDAQ exchanges). Dual listing can be done quickly and cost effectively.
AIM was launched by the London Stock Exchange in 1995 as a fledgling exchange to enable small companies to raise a little capital to develop further such that they could then move up to the Full List in London. However, the favourable regulatory environment and attractive tax breaks quickly made it a popular destination for growth companies which in turn drew in new investors and a whole community of advisors from brokers and NOMADs through to lawyers, accountants and financial PR to support the growth.
| 1995 | Now |
|---|---|
| Perceptions of poor quality vs Full List | Investors agnostic to AIM vs Full List |
| Liquidity issues | Investors less concerned about small company size |
| Size issues | Most funds now have remit to invest in AIM |
| Limited market makers/research | International investors participate in listings |
Just domestic UK issuers |
Nearly 100 NOMAD/brokers & 2000 professionals servicing AIM |
| Institutional funds limited | Liquidity and valuation improved markedly |
| 15 market makers | Over 80 market makers |
| Quality threshold far better | |
| 30% AIM companies now international |
AIM is often wrongly compared directly with NASDAQ. NASDAQ services companies with market caps of greater than $bn (companies in excess of this figure account for over 90% of total value). Sub that level NASDAQ small cap stocks tend to suffer from limited coverage (over 1200 of NASDAQs 3200 companies have zero research coverage) and hence limited liquidity and depressed valuations. In contrast, while AIM is probably not the best exchange for companies with market caps in excess of $500m, it does provide a unique source of financing or liquidity for smaller growth companies, particularly given its superior characteristics to other small cap exchanges such as the OTC markets.
This is evidenced by the fact that in 2006 the average IPO offering size for companies listing on NASDAQ was $125m versus $84m on AIM. The average market capitilisation of the 334 IPOs on AIM in 2006 was just $130m. Although every company will have its own unique considerations, if a company is likely to have a market capitalisation of less than $500m, it could well fare better on AIM.
