London Stock Exchange has both its Main Market for established companies, and AIM, its “growth market” for smaller companies.
One thing that is sometimes heard in circles and forums discussing these markets is an assumption that when smaller companies mature, they will naturally want to “graduate” from AIM to the Main Market. But is this assumption correct?
Reasons for wanting to move from AIM to the Main Market could include increasing the public profile of the company, gaining the kitemark of being on London Stock Exchange’s premium market, and getting exposure to a larger number of investors and a deeper pool of capital.
The QCA has gathered the data from the past 10 years and found that since 2008, 65 companies have moved from AIM to the London Stock Exchange Main Market. However, the number of companies making the switch from the Main Market to AIM has trended downwards over the past 10 years, indicating that this is becoming a less frequent path taken by growth companies.
What was also very interesting in our research was that we found that 56 companies had moved the other way - from the Main Market to AIM - in the same period. This is only a relatively smaller number than moving the other way.
There are also years where the number of companies moving from the Main Market to AIM is higher than the other way around. For instance, in 2014 four companies moved from AIM o the Main Market, but eight companies moved from the Main Market to AIM.
This seems to undermine any assumption that the AIM growth market is a one-way feeder to the Main Market. That the number of companies moving from the Main Market to AIM is only a little lower than the other way around will probably be surprising to some.
Why would companies move “down”, from the Main Market to AIM? Well, AIM has generally lower regulatory requirements to be on. This can make the process of listing and maintaining the listing less burdensome and costly.
AIM and “growth markets” in the UK have been a great success, especially in comparison to other SME markets across Europe. Their success depends on them being able to offer a more flexible regime that is better suited for smaller, growing companies.
The disparity in size from the very biggest firms on the UK’s public equity markets to those at the smaller end is huge. In fact, small and mid-caps far outnumber the big companies - by the standard estimates, there are 2000 small and mid-size quoted companies in the UK - representing 85 per cent of all quoted companies.
What this means for us is that proportionality is key in all policy making and regulation for these markets. We need to ensure that the rules are proportional to the size of the company in order to not overburden it. We often find that smaller companies are negatively impacted by one-size-fits-all policies which are really intended to be aimed at the biggest companies.
Ultimately, we all want small companies in the UK to succeed. It’s in the best interests of all to have an environment to encourage them to flourish, create jobs, contribute taxes, and innovate.
Maybe the figures we uncovered about companies moving between AIM and the Main Market shows how a more flexible regulatory environment is preferable for many and that proportionality in regulation works and should be considered in all policy making covering UK companies.