Every growth company will inevitably reach a point in its development where it needs to consider whether to remain private or go public. If the decision to go public is taken, it is critical to make sure that the right stock exchange is selected, particularly so if the company is considering listing on a foreign exchange. This section addresses some of the benefits of being a public company and why AIM should be a serious consideration for all small cap growth companies from around the world.

The benefit of listing on AIM can be assessed at two levels:

• The attractions of being a public company – Once a company goes public it can look forward to a number of benefits. These include the ability to readily access capital; superior valuations to private companies; new investors; greater corporate profile; ability to incentivise staff; currency to make acquisitions; and the ability for initial investors to exit.

• The attractions of London’s AIM exchange – Small cap growth companies should consider AIM over other exchanges for a number of reasons. These include the fact that AIM is specifically focused on small growth companies; the investment banking services are strong; large institutions invest in AIM and private investors are incentivised to own AIM stocks; secondary fund raisings are common; liquidity is good; regulation is light; valuations are attractive; and the listing process is relatively quick.

The attractions of being a public company

There are a whole raft of benefits for a company that chooses to list on AIM:

• Ready access to capital – In addition to the growth capital received at IPO, a company can regularly return to the market to raise fresh capital quickly and easily. This can be extremely helpful when making acquisitions, particularly when bidding against private competitors.

• Attractive public market valuations – In many cases AIM valuations are likely to be well in excess of the private equity valuations and a listing provides an objective benchmark valuation and liquidity for staff. Improved valuation levels also reduce the dilution impact of future capital raising rounds.

• Broader investor base – Often accessing new investors and broadening the shareholder base allows a number of new doors to be opened, particularly if the investors are high quality institutions.

• Improved incentivisation for staff – A public listing can incentivise staff and management through employee share option schemes and can enable high quality staff to be attracted.

• Improved corporate profile – Being a listed company on an internationally recognised and respected exchange confers greater credibility and financial stability which can be hugely influential for potential customers, suppliers and financiers.

• New acquisition currency – The ability to issue stock as part of corporate transactions has a number of obvious benefits.

• Exit route for existing investors – An IPO can provide an immediate exit route for initial investors, usually at superior valuations to the private market. Greater liquidity offered by the public markets also makes further stake disposals easier.

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The attractions of AIM

AIM’s evolution into the globally recognised market of choice for small and mid cap companies is attributable to a number of attractions:

• AIM specialises in small and mid cap – The AIM exchange is predominantly focused on servicing the financing needs of small and mid cap companies with the average market cap of the 1634 companies (to December 2006) being $110m. This is particularly important from a US perspective given that, at the public level, this asset class is almost non-existent now.

• High quality investment banking services – With nearly 100 NOMAD/brokers servicing AIM, there are over 2000 investment banking professionals in the London market across research, sales and corporate finance. This unique situation enables even micro-cap companies, through their NOMAD/broker, to benefit from access to investment banking services usually only enjoyed by much larger companies. From high quality M&A advice through to detailed valuation enhancing pre IPO research (not permitted in the US) and ongoing comprehensive analyst research and sales support, small cap companies are generally far better serviced on AIM, and at a lower overall cost. This is particularly relative to their US counterparts where the small cap asset class is neglected and many stocks with market caps of sub $500m are ‘orphans’ with no research coverage.

• Good quality institutional investor base - AIM IPOs are virtually always done exclusively with institutional investors (retail investors get involved post IPO). With London being a huge centre for capital, very large European institutions invest in AIM in addition to the familiar US names such as Fidelity, Merrill Lynch, Lehman, Bank of New York, Chase Manhattan, Goldman Sachs etc.Click here to see the list The appetite for AIM stocks is reflected in the fact that AIM companies have raised over $77bn over the past 12 years. A listing on AIM will often enable small cap companies to get a high quality institutional investor base at a far earlier stage than would be possible anywhere else in the world and regularly return to raise fresh rounds of capital from them.

• Long-term private investors – AIM investors benefit from a number of tax incentivisation schemes designed not only to attract investors, but also to encourage them to hold the shares for certain lengths of time in order to get the full tax savings. As such retail investors also take a longer-term view when investing in AIM companies which reduces the volatility and ‘flip mentality’ that exists on other small cap exchanges around the world.

• Secondary issuances common – Unlike on other global exchanges, secondary issuances on AIM are commonplace. Through 2005 and 2006 AIM listed companies have come back to the market to raise a further $16bn. This offers small companies a major advantage as the initial IPO doesn’t have to be hugely dilutive and the market can be opportunistically tapped both regularly and quickly to facilitate growth/acquisition requirements, or for early investors to further exit their stakes.

• Better relative liquidity – When compared against other exchanges in Europe, and the OTC markets in the US, which are designed to service the financial needs of small cap exchanges, in general AIM provides companies and their investors with superior liquidity click here to see.In absolute terms the average daily value if stock traded on AIM has increased 9 fold since 2003.

• AIM regulation is light – The London Stock Exchange has long recognized that in order for smaller companies to thrive, management need to focus on operations not regulations. Accordingly there are very few eligibility criteria for listing on AIM, particularly relative to the US markets where Sarbanes-Oxley acts as a major detractor. Click here to review criteria
  However, this does not mean that low quality companies can IPO. NOMADs, who conduct due diligence and are responsible for compliances, are very focused on key issues such as robust financial controls and strong corporate governance. Naturally the benefits of lighter regulation include significantly reduced costs and management distractions.

• Favourable Directors & Officers liability environment – Investor culture in the UK is far less litigious. Class actions are difficult and shareholder action against Directors is rare.

• Attractive valuations – Valuations on AIM are not compromised relative to other exchanges and in many cases are well in excess of their international peers. As such both companies and initial private equity investors often consider AIM as an attractive and less dilutive alternative and to either a new private equity funding round or an M&A transaction.

• AIM listing process is quick – Typically the AIM IPO process will take around three to four months from the appointment of a NOMAD/broker through to the listing and receipt of funds required. This compares favourably with NASDAQ where the process is often significantly longer and more time consuming for management. Click here to review the process

• Pre-IPO financing often possible – As more and more institutions look to invest in AIM to get exposure to growth companies at an earlier stage, a growing number, including hedge funds, are now looking to get involved one stage earlier. This has created a pre IPO market which an increasing number of NOMAD/brokers are stepping up to facilitate. This provides small growth companies with the opportunity to raise a smaller (less dilutive) amount of money to accelerate growth up to 12 months ahead of a larger fund raising (at a better valuation) at the IPO on AIM. Click here to read more.

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