UK: AIM: Sweet 16 And Still Going Strong

Last Updated: 15 December 2011

Article by Marcus Stuttard of AIM London Stock Exchange

Quoted business catches up with Marcus Stuttard, head of AIM at the LSE, to find out how the growth market is faring and its plans for the future.

Often dubbed the 'junior market', it would appear that 16 years after its launch AIM has truly come of age. Through three years of global economic turmoil, AIM has demonstrated its resilience not just as an IPO market, but as a mature growth market where companies can continue to come and access finance. In 2009, around £5.6bn was raised on AIM through new admissions and fundraisings, rising to £7bn in 2010. This year, AIM has raised £3.6bn to date, proving it can hold its own despite the tough market conditions.

Strength to strength

Marcus Stuttard, head of AIM, says: "A public listing has put many AIM companies in a far stronger position than their unlisted peers in these difficult times. This demonstrates the benefits of a public quote versus other forms of finance, particularly when you look back to 2008/09 when market conditions were exceptionally tough. It was difficult for many unlisted companies to access finance then. But those on AIM were able to tap into the deep pool of institutional capital and adviser capability available. Add to this the spin-off benefits of good profile, visibility and credibility and, for many companies, an AIM listing has been the right decision."

There continues to be a strong pipeline of companies looking to access AIM, largely because it's one of the few growth markets representing such a broad range of sectors (40) and jurisdictions (90+). "So far this year, there have been 62 new AIM admissions of which 16 have been international. And the pipeline is growing," says Marcus. "AIM remains diverse and is not looking to prescribe the types of companies that should come to the market. But it recognises that at different points in the economic cycle, certain companies will appeal more than others. For example, the extractive industries sector is currently looking attractive to investors because of strong commodity prices."

Role of equity finance

Marcus sees equity finance playing an increasingly important role, especially in the technology and innovation sectors where accessing growth finance at an early stage is crucial. He says: "If companies can't access equity then there's the risk they'll have to sell early and miss out on fulfilling their potential. Across key markets in Europe, equity investment is under-utilised." In fact, recent figures published by the European Central Bank show that equity investment is among the least used sources of finance by SMEs in Europe, just missing out on the bottom slot to debt securities.

"The European venture capital community is in need of more active, dynamic, growth markets to exit their investments, which provides a real opportunity for AIM," says Marcus. But, for investors and companies to want to continue coming to AIM, investors need to feel that the market remains well regulated – although not to the extent that companies find the admission process unduly onerous. There is also the question of whether the introduction of the Standard Listing regime on the Main Market, with its lower eligibility criteria and fewer continuing obligations than AIM, could pose a threat to the junior market.

Regulation v flexibility

According to Marcus, the balance between regulation and flexibility on AIM is a key focus for his team. "The package of regulatory changes that we introduced in 2007 set us up well for current market conditions," he says. "No further changes are in the pipeline, although these issues are always under review. It's important for companies to have access to growth capital, but investors must also have confidence in the regulatory model. The levels of fundraising that we've seen in these tough economic times suggest we've got the balance right."

In the case of the Standard Listing regime, Marcus says it offers additional choice for companies but it isn't being actively promoted as such. "The platform has appealed to companies that might not be appropriate for a Premium Listing on the Main Market or AIM and would benefit from a more flexible regime, for example, real estate companies or acquisition vehicles. But it's not for everyone. Many investors are asking companies to explain their reasons for wanting a Standard Listing," says Marcus. "If the answer is simply the lighter-touch regulatory regime then investors just aren't interested. They want satisfactory reasons for companies taking this route." With this in mind, it seems unlikely that a Standard Listing will be enough to lure away existing AIM-listed issuers or new market entrants in large numbers – but only time will tell.

Looking ahead

Going forward, Marcus says: "There's still a need to widen our investor base and this has been a theme in the lobbying and public policy debate that we've been involved in. AIM has representatives on the European Commission's SME Finance Forum and other European lobby groups. It has been actively involved in negotiations on a number of UK and European directives that have been reviewed or are up for review."

In fact, Marcus says the recent changes to the UK rules on venture capital trusts (VCTs) and the enterprise investment scheme (EIS) were pushed for by AIM. They are also involved in dialogue on MiFID and welcome a framework that attracts a broader range of SME investors via the growth markets. "Policymakers in the UK and across Europe understand the importance of SME growth and the need to access meaningful amounts of capital. This means lightening the burden on SMEs and proportionate disclosure so that AIM and other growth markets can play an increasingly important role.

"Through the AIM community, we have contributed £21bn to GDP, £2bn to UK tax revenues and 570,000 employees. The future of the market depends on maintaining this strong and diverse community, and ensuring that AIM remains competitive compared to other markets around the world."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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