Tenth Annual Taking AIM Survey
Baker Tilly
22-Sep-06
Whether you are at the early stage seed level, seeking VC mezzanine finance or have already made your mark by getting listed on the Alternative Investment Market (AIM), you are likely interested to know what things are like there.
We wanted to provide you with as precise as possible an overview of AIM and where things stand after it’s 11th year going. As you will see below, there are some surprising points and a number of items you would never have likely guessed.
AIM is here to stay and will continue to be the “Golden Goose” of the start-up entrepreneur. Read on to see the findings from Baker Tilly and Faergre & Benson.
Introduction by Brian Perry
The tenth annual Taking AIM survey, undertaken by Baker Tilly in partnership with Faegre & Benson was carried out by an independent research consultancy. The survey of listed companies involved 150 companies currently quoted on AIM and 60 smaller Main Market companies.
Survey highlights:
- 1,528 companies now listed on AIM.
- £7.3 billion raised on AIM in the twelve months to 31 May 2006.
- There have been 199 admissions to the market so far this year.
- Average daily valuation increased from £167.3m in 2005 to £278m so far in 2006.
- Company expectations of NOMAD’s continue to increase.
- IFRS implementation remains a major challenge.
- Insufficient understanding of investor relations amongst AIM companies.
Commenting on the survey Chilton Taylor, head of capital markets at Baker Tilly, said:
“Today AIM is a dynamic market whose future success will depend on its ability to continue to attract quality, well regulated, growth companies, whilst maintaining an appropriate but lighter regulatory touch - a hallmark of its success to date. Baker Tilly has had a busy last 12 months advising on 44 AIM admissions and were voted AIM Accountant of the Year for the fourth consecutive year.”
Max Audley, corporate partner at Faegre & Benson and a member of the AIM Advisory Group, said:
“This year’s report provides further evidence that AIM is now regarded as a long-term growth and investment vehicle, with an increasing number of companies planning to use the market for secondary rounds of funding. AIM has avoided some of the burdensome regulation imposed by the prospectus directive and is now regarded as the international market of choice for growth stocks.”
Overview:
2005 was a year of consolidation for AIM. The maturity and global reach of the exchange is increasingly reflected in the breadth of companies joining AIM and the ever-wider range of investors that focus on AIM listed companies.
Throughout 2005, the market continued to meet and exceed the expectations of AIM companies, however, there were positive and negative aspects to AIM’s success. During the year the market’s strength was reflected in the growing number of IPOs, the amounts raised on the market, the size of the top AIM companies and the continuing appetite of investors. On the other hand, in terms of investment performance, AIM disappointed some and lagged behind other markets. This may have reflected a readjustment after a couple of years of strong growth, but was attributed by many experts to the distraction created by the large number of new issues.
Many AIM companies complained that the City does not follow them closely enough, yet few have had and many would welcome guidance or instruction in investor relations. AIM listed companies are very positive about 2006 and almost all expect the market to improve or remain stable. Canvassed experts are also optimistic, seeing a continued flow of new issues, continuing overseas interest (stimulated by the initiatives of the AIM team) and some recovery in investment performance.
Key Findings
Advisors:
- Half of the companies surveyed in the poll said that the fees paid to advisers (accountants, lawyers, nominated advisers, brokers, financial PR and registrars) were in line with expectations but 42% said they were greater than expected.
- The majority of companies blamed higher legal fees for fee over runs. While, 47% acknowledged that they were insufficiently prepared for the process, 33% cited insufficient guidance as the greatest cause.
- Surprisingly, almost half the respondents had no introduction or instruction on investor relations. 76% of director’s surveyed claimed that learning about investor relations and how best to manage communications with the investment market would be helpful as part of the IPO process.
- The importance of City advisers maintaining high skill levels was highlighted with “quality of the team doing the work” and “speed of response” consistently ranked as the most important service of NOMADS/brokers, corporate lawyers and reporting accountants.
- The survey showed that companies approaching AIM continue to place a high value on their advisors; 39% of companies believe that the most important advice for a company considering an AIM flotation is to choose its advisers carefully.
- The planning and managing of investor relations strategies and activities was primarily led by: internal management (83%); brokers (39%); and PR agencies (33%).
Flotation / Raising funds:
- Companies that floated in 2005 appear not to have found it quite as easy as those floating in the previous year – one third said that the process took longer than they expected. Overseas companies tended to find the process less easy and less in line with expectations than domestic companies.
- Companies that floated in 2005 raised slightly less on average than companies that floated in 2004. But, most raised the funding they expected to and none regret floating on AIM.
- On admission to AIM, over half wanted to leave sufficient room to ensure an aftermarket for their shares.
- More money was raised in secondary funding in 2005 than in 2004.
- Only 8% of the companies polled failed to raise the funding that they had expected and 64% raised funds at the price they were originally advised or expected.
- 69% of companies questioned would not have accepted a lower issue price to ensure a better aftermarket.
- 90% of AIM companies interviewed are considering a second round fund raising on AIM.
Governance:
- 67% of surveyed companies have made changes to their corporate governance since listing on AIM. 74% have set up Audit Committees, 64% appointed non-executive directors and 36% started boardroom appraisals. 51% claimed that the continuing obligations of being an AIM company were fairly onerous.
- 52% of companies believed the prospectus directive would have no effect on them.
- 51% believe that AIM does not currently require any improvement and 27% of interviewees believe the biggest threat to AIM is increased regulation.
- Less than a quarter of AIM companies are prepared for IFRS compliance.
- The survey showed that 70% of the companies that had moved from the main market to AIM did so due to the less onerous regulation.
Performance:
- 1,528 companies are now listed on AIM. Of this 1,459 are actively1 traded and 4082 were added in the twelve months to 31 May 2006. A record amount of £7,291 million was raised in the same period.
- 35% of companies surveyed felt that their shares had performed worse than expected with 41% perceiving their performance as in line with expectations.
- There were high percentages of companies that felt listing on AIM provided them with: good long-term growth potential (90%); better ease of raising capital (82%); opportunity of releasing personal equity (53%) and increasing share price (64%).
- 72% of companies plan to stay on AIM for the next five years and 43% of companies believed they would make an acquisition in the same time period. 77% of companies did not attach any importance to seeking to move to the main market.
- Some experts interviewed believed the number of IPOs in the AIM market dragged the index’s performance down. After a reclassification by the LSE there are sector subgroups which have performed to a very high level (as measured by market capitalisation): Electricity (814%), Insurance (784%), Real Estate (488%), Chemicals (149%) and Utilities (159%) 3.
Internationalisation / Regional Diversification
129 companies from overseas listed this year, excluding readmissions. That broke down as follows:
Australia________________ 19 Bangladesh_______________ 1 Belgium_________________ 1 Belize___________________ 3 Bermuda_________________ 11 British Virgin Islands_____ 10 Canada___________________ 12 Cayman Island ___________ 8 Cyprus___________________ 3 Germany__________________ 1 Gibraltar________________ 1 Hong Kong________________ 1 India____________________ 2 Ireland__________________ 17 Israel___________________ 8 Italy____________________ 2 Luxembourg_______________ 2 Malaysia_________________ 1 Netherlands______________ 4 New Zealand______________ 1 Norway__________________ 1 Singapore________________ 1 Sweden__________________ 1 US______________________ 18
Chinese companies list via holding companies registered in other countries, so no companies on AIM have China as their country of incorporation.
- AIM flotations, in the year to 31 May 2006, were divided amongst 10 UK regions4 with London, and the offshore region of the Channel Islands and Isle of Man arguably claiming the greatest AIM entrepreneurs, with each region accounting for the 42% and 20% of the UK IPOs respectively, and 22% and 61% respectively of the money raised by those IPOs.
Issues:
- There are concerns that the light regulatory framework and the beneficial tax environment will attract unwarranted attention from the regulators and the Chancellor respectively and that increased regulation or decreased tax benefits would negate many of the reasons that have produced AIM’s pre-eminence as a market for growing companies.
- With the large number of companies coming to the market and particularly some of the more speculative resources companies and international companies, there are some concerns that the quality will be compromised and that failures might knock confidence in the market.
- It is also noted that, whilst AIM has taken the lead from other international markets, competitors may seek to replicate this model.
NOTES TO READERS:
- Baker Tilly is a £183.9m, top 10 firm of accountancy, tax and business advisers to entrepreneurial businesses.
- In April 2006, Baker Tilly was voted the AIM Accountant of the Year for the fourth consecutive year.
- Baker Tilly has advised over 150 companies that have sought an AIM flotation and currently has over 120 AIM audit clients
- Key professional services: audit and advisory, business recovery, corporate finance (AIM and OFEX specialists), e-commerce, forensic accounting, litigation support, tax and tax investigations, VAT.
- Sector expertise: agriculture, charities and education, media, pensions, professional practices, public sector, property, social housing.
- Baker Tilly has over 2,000 members of staff and 270 partners with offices in 30 UK locations.
- Baker Tilly International is the 8th largest network in the world by fee income. It is represented by 128 firms in 85 countries, with a global fee income of US$2.12bn and 20,100 staff worldwide.
- Faegre & Benson is an international law firm which offers an integrated team of over 475 lawyers in the USA, Europe and Asia. In January 2003 it strengthened its capabilities in London by merging with respected City practice Hobson Audley, consolidating its long-term multinational partnership with the firm. Faegre & Benson UK focuses on corporate finance, dispute resolution, employment, technology and commercial property.
1 Of the 1,528 companies listed on AIM at 31 May 2006, the 1,459 actively traded companies excludes one unvalued company and 68 suspended companies.
2 This figure does not include re-admissions.
3 These percentages are based on the increase in market capitalisation for each sub-group over the 12 months ended 31 May 2006. These sub-groups appear in both the 2005 statistics and the 2006 statistics, however it must be noted that with the LSE’s reclassification of sectors, it is possible that companies have been moved into these sub-groups that were previously in different ones, as well as new admissions.
4 Uk regions decided upon by Baker Tilly, and companies were placed in regions according to the region stated upon their appearance in the statistics by the LSE on admission.
This is the tenth annual Taking AIM survey, undertaken by Baker Tilly in partnership with Faegre & Benson. The research was commissioned by Baker Tilly and carried out by an independent research consultancy, David Burton Associates.
Taking AIM 2006 focuses on the experience of companies listed on AIM, encompassing: recent market entrants, established AIM quoted companies, those who have recently transferred from the Main Market and overseas companies listed on AIM.
Qualitative views were also sought from market commentators, influencers and opinion-leaders playing key roles in AIM. These encompassed covered analysts, stockbrokers, journalists fund managers and financial PR’s.
The main survey of listed companies was conducted by telephone and involved 150 companies currently quoted on AIM and 60 smaller Main Market companies. Within the 150 AIM listed companies, 25 are based overseas (11 of these being recent market entrants).
Baker Tilly can be reached at:
020 7413 5100 (Bloomsbury Street office) or 020 7002 8600 (Old Bailey office) London
