AIM Turning The Corner?
Tuesday, January 04, 2011

New research from Trowers and Hamlins LLP, the City law firm, and UHY Hacker Young, the leading accountancy group, suggests that London's Alternative Investment Market (AIM) is reaching a turning point in its return to normality with an influx of new issues and a sharp fall in the number of delistings.

According to the research, during 2010 the number of companies leaving AIM fell by 44% from 280 in 2009 to 157. The final quarter of 2010 also saw the number of companies joining the market (23) surpass the number of companies leaving due to financial or other problems (13) for the first time since the start of the financial crisis.

Charles Wilson, Partner at Trowers & Hamlins, comments: “AIM has taken a real beating over the last two years, but has weathered the storm nicely and could well emerge stronger than it was before the financial crisis.”

Laurence Sacker, Partner at UHY Hacker Young, adds: “AIM is certainly heading in the right direction. Delistings appear to be stabilizing, while the upturn in IPO and new issue activity is encouraging. However, the market’s return to optimism is tempered by a lot of caution - conditions are not yet what you would call buoyant.”

During 2010, the number of new listings more than trebled, up from 18 in 2009 to 65 in 2010. The total money raised by these new listings rose more slowly, up from GBP610m (USD943m) in 2009, to GBP1.0bn in 2010.

Sacker continued: “There has been an influx of new listings, but the amount of new money raised has not quite kept pace. At the same time, further issue activity has been strong – reaching GBP4.5bn by the end of November, which suggests that investors are backing only a few new businesses, preferring to stick with those they know well.”

He added: “In terms of UK companies in particular, it is also likely that the recent credit drought means companies that have grown sufficiently in the last two years to now be in a position to contemplate an IPO are a relative rarity.”

In 2009, 212 companies cited financial problems, the failure of their business strategy, the cost of maintaining a listing or other difficulties as the reason for their departure. In 2010, the number of companies leaving AIM because they could not maintain their listing, or did not see the value of doing so, fell to 72.

In the final quarter of 2010, the number of companies joining AIM outweighed the number leaving due to financial or other problems for the first time since the start of the financial crisis. The number of companies delisting from AIM fell from 45 in Q3 2010 to 31 in Q4, while new listings jumped from 16 to 23. The majority of companies departing during Q4 left as a result of M&A activity or promotion to the Main Market.

Wilson explains the impact this is having on the make-up of the AIM market: “Losing companies due to M&A activity or because they have graduated to other markets is a sign that a market is healthy. But the financial crisis meant that AIM shed a lot of companies which were forced to delist due to financial stress, or which for various reasons were not suited to AIM. These weaker companies are now starting to be replaced by companies that have continued to grow through the recession and are prepared for the opportunities and challenges of being on a public market.”

In another sign of AIM’s return to normality, M&A activity was behind half (52%) of all AIM delistings in Q4 2010 (16), and behind 44% of delistings during the year as a whole (69). During 2009, just 20% of delistings (56 in total) were due to M&A activity.

Sacker comments: “M&A activity on AIM is just starting to pick up. While in some cases this may mean that weaker companies are being bought out rather than quitting the market, the fact that would-be buyers of AIM firms are increasingly able to finance deals is none the less a positive sign.”

Trowers & Hamlins and UHY Hacker Young point out that while the volume of M&A deals on AIM has risen slightly, there have been cases of companies being sold at a discounted share price.

Wilson comments: “The upturn in M&A activity suggests that some companies were looking for economies of scale and hoping to expand by taking advantage of relatively depressed valuations on AIM. However the market’s rally in the last quarter may mean that the window for that type of deal has closed.”