Defiant AIM chief stands by his market

Inside the main lobby of the London Stock Exchange, digital screens are responding to another depressing day of news from the eurozone. Flashing red bank stocks have dragged the FTSE 100 index of leading shares significantly below the psychologically important 5,000-point threshold.

But inside a meeting room in the LSE’s headquarters, the head of the Alternative Investment Market warns against underestimating the junior market.

“Clearly financial markets have been volatile for some time around the globe,” says Mr Stuttard. “But small caps and mid caps are particularly important for economic growth and job creation.”

He slides a report by business advisers Grant Thornton across the desk. Published a year ago, the report shows AIM companies directly employed more than 250,000 full-time staff in 2009, increasing to 570,000 when indirect and induced workers are factored in. It estimates the market contributed more than £12bn directly in Gross Domestic Product to the UK economy, plus another £1.8bn in tax revenues.

“I think there’s been a tendency for management teams and entrepreneurs to think about how they grow their businesses over a short period with a view to a trade sale,” says Mr Stuttard.

“For a lot of businesses there would be a massive additional benefit (in joining AIM). The money is there for the right stories.

“It’s not going to be right for all businesses, but those that have got growth aspirations, it’s a form of finance that more management teams should be thinking about.”

But another set of numbers suggests fewer companies think an AIM flotation is right for them.

Latest figures show 1,156 companies were listed on AIM in September. This total has fallen yearly since AIM achieved a high of 1,694 companies in 2007.

The number of UK companies stood at 930 in September, down from a peak of 1,347 in 2007. The number of international firms was also down at 226, from a high of 347 in 2007.

Crash repair firm Just Car Clinics, based in Goole, East Yorkshire, recently became the latest Yorkshire firm to announce its intention to leave AIM, following other Yorkshire firms including Clyde Process Solutions.

Just Car Clinics cited volatility in its share price, unjustifiable costs, low demand for its equity and the regulatory burden.

Colin Glass, a non-executive director at AIM-listed Yorkshire firms Straight, Getech and Surgical Innovations, admits the bar has been raised for firms looking to float on AIM.

“They’ve got to be a lot, lot stronger than perhaps they were five to six years ago,” he says. “Unless it’s a really strong case I think you need to wait until you have some wool on your back.”

But he says benefits such as increasing a company’s profile, incentivising staff and creating fundraising opportunities far outweigh the negatives.

“AIM is symptomatic of the problems in the wider economy,” says Mr Glass. “We know that AIM has been hammered like other stock markets but it still has a place in fundraising. There needs to be an education in small growing companies so that even if they’re not ready at the moment, they realise there’s an alternative.”

IP Group, a major investor in university start-ups, recently raised £55m to plough into its portfolio of more than 60 companies.

Last week one of its companies, University of Leeds spin-out Photopharmica, said it was considering a sale or partnership after a successful clinical trial. Conspicuous by its absence was mention of an IPO.

Mike Townend, chief investment officer at IP Group, said: “AIM has been pretty tough for us for the past few years. There are not investors falling over themselves to invest in very early stage biotech companies.

“I would point back to the reason why we raised our money recently. That was to be able to invest in our companies longer and effectively, to bring them to the stock market when they’re more mature and ready for the market. Doing it at the right time is critical.”

Mr Stuttard, who took over as head of AIM in 2009, insists falling numbers of companies listed does not suggest a market in decline.

“It does not worry me. This is not just something that’s happening to AIM.

“In any year, whether you’re in a bull or bear market, there’s always going to be a churn or turnover of companies.”

And while new admissions last year raised just £1.2bn on AIM, down from almost £10bn in 2006, he says the access firms have to secondary funds is still significant. Last year they raised £5.7bn through further fundraisings.

“These are large sums of money that are being raised,” he says. “We’re looking at ways to continue to increase the number of investors that invest and support small companies.”

Another Yorkshire firm, engineering business 600 Group, recently moved to AIM from the main market to take advantage of looser listing regulations.

Last week Mr Stuttard attended a roadshow in Yorkshire, where he spoke to advisers, venture capital funds, potential IPO candidates, universities and AIM businesses. He says increasing its regional presence is key for the LSE.

“The economic contribution to the UK and not just London is really significant. This is not about building a short-term pipeline – it’s a long-term pipeline.”

More than 3,000 firms have signed up over 16 years

The Alternative Investment Market (AIM) was launched in 1995 to give smaller and growing companies access to capital.

Since then more than 3,000 companies from around the globe have joined the London Stock Exchange’s market for smaller companies.

Research from business advisers Grant Thornton shows AIM companies employed about 570,000 people directly and indirectly in 2009.

It contributed a total £21.4bn of GDP to the UK, both directly and indirectly.

AIM’s key advantages are cited as access to capital and ongoing finance, increased public profile, access to expert advice and giving the ability to attract and retain staff through incentives and share options.

Marcus Stuttard was appointed head of AIM in 2009, taking over from Martin Graham. Mr Stuttard joined the London Stock Exchange as a regulatory adviser in 1994.

Since then he has held a range of roles including responsibility for the exchange’s relationship with corporate advisers.