The prospect of becoming a public limited company (Plc), with shares traded and significant investment secured through the London Stock Exchange (LSE), may be the Holy Grail for some growing businesses. But many business owners are understandably deterred by the burden of regulation, the required trading track record and the sizeable fees associated with a stock market flotation.
However, the Alternative Investment Market (AIM), launched by the LSE in 1995, offers businesses most of the benefits of a public listing without so many of the burdens. It is no surprise therefore, that a little over 20 years since it was launched, AIM can justifiably claim to be the world’s most successful public market for smaller growing companies.
More than 1,000 companies are currently listed on AIM (more than 3,500 have joined since 1995) – with the figures released to celebrate the Market’s 20th anniversary in 2015 testament to this success story. The average market capitalization (a measure of the value of a company, calculated by multiplying the number of either the outstanding shares or the floating shares by the current price per share)of an AIM company grew from £8.2m in 1995 to £70m in 2015.
Furthermore, the total turnover of UK-incorporated AIM companies is now in excess of £50bn, with around a third of AIM-listed companies operating largely or completely overseas.
Perhaps most impressively, in the first year after admission, companies with turnover of less than £5m can (on average) expect to grow their turnover by 200 per cent and their employee headcount by more than 100 per cent. Such statistics reinforce AIM’s role as a hothouse for cultivating small to medium growing business – one which has been the chosen route for a number of now household names including ASOS, Dominos and Majestic Wine.
What are the benefits of joining AIM?
- Providing access to capital: figures for the end of 2016 show that on average, companies floating on the market raised £30m; the 38 companies that floated during 2016 increased their worth by around 40 per cent, compared to the point at which they launched their initial public offerings (IPOs) – the first sale of shares by a company to the public. The capital raised can be used as development capital, as cash out for existing shareholders or as a mixture.
- A lower regulatory burden than floating on the LSE: the regulations in place are generally more flexible and more tailored to support the needs of smaller companies, start-ups and rapidly growing businesses than in many other markets (however, they must not be underestimated). For instance, there is no requirement for a minimum number of shares to be held in public hands. Financial reporting is also more flexible – however, it is notable that prior to flotation a NOMAD (Nominated Advisor) will require a Reporting Accountant to prepare a financial due diligence report (see “How do you join AIM”, below).
- Gaining admission to AIM will certainly increase your company’s profile and lend it credibility. The added status of dealing with an AIM-listed plc could help your business in gaining new customers, as well as when working with suppliers.
- Publicly tradeable shares are likely to be appealing to key staff, and will help to make employee share schemes and benefits packages more attractive.
- Although pension schemes and institutional investors are taking a more active interest in AIM companies, the market also attracts significant numbers of investors who are interested in helping companies to grow and develop – consequently, many AIM companies benefit from the expertise and networking opportunities that these investors can offer.
- There is the possibility of significant tax benefits for those looking to invest in the AIM – ranging from Business Property Reliefs and Enterprise Investment Schemes to Entrepreneur’s Relief/Investors Relief and Stamp Duty exemptions.
- Some investors may also be able to invest through an ISA (subject to annual allowances), making the investment Income and Capital Gains Tax efficient and if certain time criteria is met Inheritance Tax efficient also.
- These potential benefits available to the investor make a company with an AIM listing an attractive investment prospect to a wider audience.
How do you join AIM?
Although you do not need an established track record of trading to join the AIM, each company applying to AIM must appoint and retain a Nominated Advisor (NOMAD) to guide it through the admission process and its subsequent life as a public company.
What is a Nominated Advisor (NOMAD) and what role do they play?
The NOMAD project manages the admission of new issues to AIM and also acts as the effective regulator. Typically, the NOMAD is an investment bank or broker with experience of bringing companies to the market.
A NOMAD’s key roles will be to assess the level of investor interest in your company (both at admission to the AIM and in the lead up to any further share issues), and advise on the pricing of shares and investment opportunities. You will also need an accountant, a lawyer and a financial PR advisor. In assessing whether a company makes a suitable prospective AIM candidate a NOMAD it will need to enlist an independent Reporting Accountant (such as Price Bailey) to carry out the work.
How long does it take?
Preparing to float on AIM can take as long as two years, although actually joining the market takes around 10-12 weeks while your appointed Reporting Accountant carries out the necessary due diligence and your NOMAD completes the application.
It can be a time-consuming and sometimes draining process – for instance, you will need to make a series of presentations to potential investors to generate sufficient interest in your initial share issue. Flotation can also be an expensive process – joining the AIM can cost upwards of half a million pounds, including fees for professional advice, while maintaining membership could cost in the region of £100,000 each year.
On balance, an AIM flotation provides a significantly cheaper alternative to floating publicly on the main London Stock Exchange. With the vibrancy of the market, and the track record of companies having attracted investment and grown as a result, the success of it is clear to see why an increasing number of business owners view admission to AIM as an attractive way to realise their growth aspirations.
This post was produced by Richard Grimster of the Technology and Tax team. For any further help or advice on AIM feel free to contact Richard using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.