What is AIM?
AIM (known originally as the Alternative Investment Market) was launched in 1995 as a share trading platform to accommodate the needs of businesses which wanted access to equity capital markets as part of their growth strategy but were deterred by the costs and regulatory burden of a fully regulated stock market.
Although AIM is a junior market operated and regulated by the London Stock Exchange, over the years it has attracted increasing numbers of institutional investors. AIM is arguably the most successful junior stock market.
AIM has proven to be particularly attractive to young fast-growing businesses, management buy-outs and buy-ins and family owned companies. AIM provides opportunities for raising capital from a broad range of private and institutional investors.
2013 was the biggest year for IPOs on AIM since 2007; an aggregate of £4 billion was raised, of which £680 million was raised in December 2013. 100 companies joined AIM in 2013.
What has changed?
The financial crises and credit crunch of the last few years have affected investor sentiments and liquidity on most equity markets across different countries and continents. The sentiment, especially in the UK, is that things have finally turned a corner – you merely have to glance at UK news headlines to see that not only is the economy growing again but also that there is an increased interest in IPOs from both companies and investors. The global economic recovery has of course been a key factor in AIM’s resurgence.
Change in the law in August 2013 has also improved liquidity on AIM. The change permits UK ISA holders to invest in AIM shares for the first time.
Following the change, Hargreaves Lansdown, a stockbroker, reported a 51pc rise in share purchases in AIM listed companies compared with the previous month. In August, 14pc of all money put into shares was invested in AIM, compared with 9pc in the previous two months.
What are the benefits?
Unlike the London Stock Exchange’s Main Market, AIM gives companies the opportunity to raise funds and trade securities on a capital market at an earlier stage in their business development because it maintains a more flexible regulatory structure which better suits smaller, growing companies. This is particularly the case for companies seeking to achieve corporate growth through acquisitions or disposals as there are reduced disclosure requirements and shareholder approval is only required for reverse takeovers and transactions that result in a fundamental change of business.
Furthermore, AIM rules do not impose a requirement for a minimum level of capitalisation (unless the company is an investing company). The AIM rules also do not impose any requirements as to the company's trading history, the number of shares in public hands, or the pre-vetting of admission documents. The main requirement is that the company is "appropriate" for market. Suitability for market is determined by the company's Nominated adviser.
The following are examples of companies that were admitted on AIM in December 2013:
• FinnAust Mining Plc (Finland – c£3m)
• Benchmark Holdings Plc (UK – c£45m)
• JQW Plc (China – c£7m)
• Redcentric Plc (UK- c£64m)
• Safestyle UK Plc (UK – c£70m)
• International Mining & Infra Corp. Plc (Cameron – c£13m)
• Kodal minerals (Norway c£1m)
• Action Hotels Plc (Kuwait –c£30m)
How to raise equity finance through AIM
On average, it takes a good six to eight months for a company to prepare for an IPO, so those looking to take early advantage of the improving IPO market should start work now.
The key stages in an IPO process are: identifying and engaging key advisers; undertaking legal and financial due diligence on the group and its business affairs and preparing legal, regulatory and marketing documentation. The timetable will be dictated by the outcome of due diligence, clarity on proposed structure of the business and share capital and regulatory requirements.
An allocation of time, management and financial resources will need to be considered to engage credible and experienced advisors. Failing to handle the day-to-day activities of preparation can reflect poorly and possibly even jeopardise the IPO.
An integral step to take early on should be the appointment of an internal team of senior executives and other key personnel to manage the IPO process and identify areas which will take significant management resources.
The advisory team will consist of a nominated adviser/sponsor, brokers/investment banks, reporting accountants, legal advisers (for each relevant jurisdiction) and a PR agency.
The success of any IPO is dependent on the company’s ability to raise the required funds. Marketing the IPO, will involve meeting prospective investors during marketing roadshows, which can be highly demanding of management time.
The successful completion of an IPO is not the end of the process as life post IPO will present its own new challenges.
Mehboob Dossa is a partner and Gabi Olson-Welsh is a senior associate at international law firm, McGuireWoods