AIM's spirits are being revived

This year will see the Alternative Investment Market, the London Stock Exchange’s junior market, turn 25.
Paul McManus is managing director of Walbrook PRPaul McManus is managing director of Walbrook PR
Paul McManus is managing director of Walbrook PR

Over the years AIM has weathered a fair few storms. Technology stock valuations were battered following the dot-com bubble bursting, the credit crunch of 2008 caused a number of AIM companies to hit the wall and also saw an unprecedented rise in de-listings.

Confidence in using the public markets was at an all-time low and 2009 only saw 36 companies seek to list in AIM, far from the heady heights of its boom years in 2005 and 2006 when 981 companies joined the junior market.

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Last year however will be a year that AIM will want to forget with only 23 companies coming to the market, not enough to counterbalance the 75 companies that jumped ship. As we welcomed in the new decade the total number of companies listed on AIM had fallen to 863, just over half the number that were listed at its peak in December 2007, when it boasted 1,694 listings.

Certainly, Brexit fears and political uncertainty played their parts in discouraging companies from considering an IPO, but there was a visible pattern of self-cleansing taking place

with a number of smaller companies leaving the market to be replaced by larger companies of higher quality. The average valuation of AIM listed companies now is currently just over £120m, significantly higher than the £66m average market capitalisation at the start of 2016.

The clear outcome of the General Election and certainty over Brexit has subsequently revived AIM’s spirits. AIM rose 6.6 per cent post the election until the end of the year, outperforming the wider UK market which rose 3.7 per cent. The back end of the year also saw three new joiners.

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Pebble Group, which provides products and services to the promotional products industry, raised £135m in December and was valued on admission at over £175m. Asset Management consultancy, MJ Hudson, joined AIM the same month valued just shy of £100m, and in November Longboat Energy listed as an M&A vehicle focussed on exploration assets, valued at £10m.

Whilst it might be too early to determine the scale of recovery of the AIM IPO market in 2020, signs of increased enthusiasm for the junior market can be seen. We know from incoming enquiries about our communication and investor relations support for IPOs, and contracts that we already have in place, that a good number of companies are considering an AIM listing and have started pulling together their advisory teams to support them.

The big question though is whether all the companies are suitable for AIM. An ideal AIM company would have a track record of successfully delivering and strong prospects for growth. Some innovative businesses will be pre-revenue, such as a successful medical device company that we work with, but the team there have a track record in engineering and innovation, an understanding of the regulatory approval processes necessary to bring their product to market and a clear pathway to generating revenues and profits.

Any company looking to list on AIM will eventually want high quality revenues, ideally recurring revenues, as public markets hate unpredictable lumpy revenues which lead to profit warnings. The business need not be profitable, but there certainly should be clear line of sight to profitability.

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For many investors paying a dividend is a big plus however it does not make sense for earlier stage businesses or tech companies where cash should be invested back into the business to fund innovation and new product development.

Many AIM investors will look closely at the management team, looking for individuals with enthusiasm for their products, a history of delivering to expectations and with a meaningful stake themselves in the business. But equally they’ll be looking beyond the executive team to ensure that is a good team under the management too – they’ll be asking who will be looking after the business when the management are busy working on the IPO.

Good corporate governance, robust accounting processes and detailed reporting systems will be essential and strong IP protection is a must. If you have a business that ticks all of these boxes then maybe 2020 is the year for you?

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