Listing on AIM (London’s Alternative Investment Market) can be dangerous
Let me say before I start that I very much welcome the arrival of AIM on the London scene over the last few years. It offers liquidity and fundraising options to companies that simply weren’t available in this country (and to an extent Europe) before. That became even more important when NASDAQ was clobbered by Sarbanes Oxley.
BUT
I have long felt that it has been over-hyped as a home for small companies.
So I thought I’d share a statistic from the FT this morning:
In a typical month this year about 40 per cent of the market’s 1,789 stocks saw turnover equal to just 1 per cent or less of their market capitalisation.
40% with less than 1% turnover - that is huge, and I would expect this 40% of companies with low liquidity are overwhelmingly concentrated at the bottom end of the market in terms of market cap.
Without liquidity on a stock market you don’t have much, IMHO. Certainly you won’t have much share price movement. You may get some publicity simply from being public, but that is about it.
You will have extra costs though, and restricted flexibility in your future actions when compared with remaining private.
I obviously have a vested interest here, in that AIM can be a source of competition for us at DFJ Esprit, but at the small end - say below £50m market cap - my advice would be to think very carefully about the pros and cons of AIM as a financing strategy for your business. High valuations don’t mean much if there is no liquidity.
There have been a number of companies that have listed with low valuations and successfully traded up. I am generalising here and AIM can certainly work for some small companies, but for me there is a much larger number that are better off staying private.
September 19th, 2007 at 1:22 pm
When it comes to VC, Aim is for dogs, or underachievers.
Either
1) dying portfolio companies (that should actually be put of their misery) that VCs want to keep alive on the very long shot that there is a chance they may turn around.
Or
2) Companies that have underperformed their target size and are washing their face but aren’t really going to set the world alight.
In the words of Danny Rimer: “What will make the difference on AIM is whether we have some really stellar companies going public on AIM, or if it’s just the problem children of various portfolios. And that is yet to be determined. You have some examples of great companies and some really dodgy companies that are going public more as a private placement alternative.”
The thing that I don’t get: 1) When do institutional investors continue to accept this crap (answer would be to look at AIM IPO fees as a total of Collins Stewart’s revenue)
September 20th, 2007 at 7:23 pm
I think you’re exactly right about this, Nic. I think when they set AIM up, rightly or wrongly, they intended it to be a sort of “substitute” for private equity deals and venture capital for many firms. If a company isn’t interesting or dynamic enough to attract private investors, then they ultimately won’t excite anybody on the stock market, even an ‘alternative’ one like AIM.
December 27th, 2007 at 6:14 pm
As a neophyte re: issues on AIM, I am concerned with what I read about liquidity and single market makers. I am being offered stock in a new spring ‘08 issue(know the U.S. founder well). My intention would be a short term trade. Is there any way to gauge the demand or “heat” for the issue such that I could trade out at a premium to offer or are “hot issues” nonexistent on AIM? Thanks
October 29th, 2008 at 12:53 pm
Try http://www.aimlisting.co.uk for more info….