UK: Listing On AIM: London’s Alternative Market

AIM, the alternative market of the London Stock Exchange, is the world’s leading market for smaller, growing companies. Since its launch in 1995, over 1,500 companies have chosen to join AIM and raised in excess of £15bn. Currently over 1,000 companies are traded on AIM with a market capitalisation of over £31bn. The largest sector represented on AIM by market capitalisation is natural resources with 136 companies with a capitalisation in excess of £10bn. Over 320 companies joined AIM in 2004 and more than 116 of the companies now trading are international companies.

AIM’s success is built on a simplified and flexible regulatory environment which has been specifically designed for the needs of smaller companies. An AIM quotation offers:

• access to a globally respected market
• access to a wide pool of capital
• enhanced profile
• increased status and credibility
• currency for and easier rules on acquisition.

Unlike most other markets, AIM does not stipulate minimum criteria in relation to company size, trading record, or a set number of shares to be in public hands. Instead, all prospective companies need a nominated adviser (‘a Nomad’) from an approved register who is responsible to the London Stock Exchange for ensuring that all applicants are suitable for admission to AIM and ready to be admitted to a public market.

There is no requirement for a London office or London resident directors, although the Nomad will normally require an appropriate mix of executive and non-executive directors for corporate governance purposes.

This flexible approach ensures appropriate quality control of prospective AIM companies whilst making AIM as open as possible to a range of smaller, growing companies.

The AIM rule book is short and simple. To gain admission to AIM companies must in general produce an admission document that includes information about the company’s directors, their promoters, business activities and financial position. This admission document is not, however, pre-vetted by the Exchange nor UK regulatory authorities but rather by the Nomad. Where a fund raising is undertaken at the time of application, the admission document will also be used for that purpose. It will, in any event, be made available to the public through the Nomad. There are certain pre-admission filings and generally the process takes around three months to admission.

AIM has also created a streamlined admission process to make it even easier for international companies who have already been admitted to certain other major markets for at least 18 months to come to AIM. These companies need not produce an admission document but can use their existing annual report and accounts and other published information which is made available on a website as the basis on the basis of which a complementary quotation on AIM is sought. A public announcement is made on where the company’s existing public record can be found. In most cases, the public announcement will be supplemented with certain AIM specific information.

This fast-track route is available for existing listings on the following stock exchanges:

• Australian Stock Exchange
• Deutsche Börse
• Euronet
• Johannesburg Stock Exchange
• NASDAQ
• New York Stock Exchange
• Stockholmbörsen
• Swiss Exchange
• Toronto Stock Exchange
• UK Official List (as issued by the UK Listing Authority).

Admission to AIM using the fast-track route does not, however, give the ability to raise funds at the time through a public offer, as it does not involve the publication of a prospectus. It does, however, allow a subsequent institutional placing which can also take place without the costs of a public offering. The fast-track route takes between four to six weeks.

All AIM companies are required to disclose details of their financial performance through scheduled interim and full year results announcements. In addition, the company will be required to make disclosures on an ongoing basis about other developments that might have an impact on the future performance of the company and/or its share price.

In most cases, AIM companies are not, however, required to produce further documentation or to obtain shareholder approval when effecting acquisitions and disposals thus enabling the company to expand or change direction quickly and cost-effectively.

Board members and other employees will, of course, be subject in any event to the disciplines of having shares traded publicly and must be prepared for closer scrutiny of the company and its performance and of key management decisions and actions.

Under the AIM rules during closed periods, prior to announcements of results and other information, dealings in the securities of AIM company by directors and relevant employees are prohibited.

Once shares are admitted to AIM, trading will commence and the AIM company’s share price will be visible across the Exchange’s information network of 90,000 terminals worldwide.

Liquidity in the secondary market is provided by market makers who are member firms of the London Stock Exchange and are obliged to quote a price in your shares between 8am and 4.30pm UK GMT time. Trading by investors is carried out through the Exchange’s network of member firms.

The choice of Nomad is central to the process. Each AIM company must have a Nomad at all times after admission to provide guidance on the AIM Rules on a continuing basis. In the run up to admission, the Nomad will:

• assess whether the company is appropriate for the market
• explain the AIM rules to and ensure that the directors are aware of their responsibilities and obligations
• co-ordinate the work of other professionals – such as accountants and lawyers who are involved in preparing your company for the market
• help put together the admission documents
• give ongoing advice and guidance on the AIM rules once a company has been admitted.

AIM companies must also have a broker who is a member of the London Stock Exchange. Whilst they may be, and commonly are, part of the same organisation as the Nomad, procedures must be in place to avoid conflicts of interest as they work together on any fundraisings.

In particular, a broker will play an important role in:

• finding prospective investors in the company’s shares
• preparing and accompanying the company on any roadshow to promote its shares to investors
• trading in the secondary market
• providing research on the company.

Other advisers involved in the listing process include:

• Ensuring that all legal requirements are met both in preparing the company for flotation and in the information disclosed in the AIM admission document.
• Assisting in drafting the AIM admission document.
• Verifying the accuracy of information included in the AIM admission document.

• Preparing a ‘long-form’ report on the company, a private document which assists the Nomad and other advisers in assessing whether the company is appropriate for admission to AIM.
• Preparing a ‘short-form’ report on the company’s financial record for inclusion in the AIM admission document.
• Reporting on the company’s working capital requirements.
• Reporting to the directors and the Nomad on the adequacy of the company’s financial systems and controls.

• Arranging press coverage on the company in advance of listing.
• Co-ordinating publicity on the day of admission to trading on AIM.

Although an AIM listing is fairly straightforward and all the necessary steps are generally within the control of the company and its advisers there are, however, certain issues that should be addressed and resolved early in the process.

Working Capital. For a company that is following the normal application process, its directors must be able to state in the admission document that the working capital available is sufficient for at least the next 12 months from admission. For a company that qualifies for the fast-track route, the directors of the company must be able to state the negative, namely that they have no reason to believe that the company’s working capital will be insufficient for the 12-month period post-admission. The reporting accountants are usually required by the Nomad to produce a working capital report in support of these statements, although the Nomad may sometimes take the view that a full audited working capital report is not required for companies following the fast-track route.

Lock-in Requirement. Where a company’s main business activity has not been independent and earning revenues for at least two years, all the company’s directors, any shareholders who hold more than 10 per cent of the company’s shares and employees holding more than 0.5% must agree not to dispose of any of their interests in the securities for one year from the date of admission.

Financial Statements. The company’s accounts must be prepared in accordance with UK or US GAAP or International Accounting Standards with, if the fast-track process is to be followed, a financial year end not more than nine months prior to admission. Financial statements prepared in accordance with any other standards must be reconciled with UK or US GAAP or International Accounting Standards prior to admission.

Verification Process. The admission document or announcement (in the case of the fast-track route) will usually be subject to a rigorous verification or due diligence process. Depending on the nature of the disclosure in the admission document and in the company’s public record, verification can be a lengthy and time-consuming exercise and its scope and timing should be agreed to fairly early in the process.

Settlement of AIM Securities. Securities to be listed on AIM must be eligible for electronic settlement. Settlement is normally through CREST. However, CREST is a system that caters primarily to securities of UK companies, securities of non-UK issuers can settle through CREST indirectly though other depositors such as DTCC in the US with whom CREST have arrangements. As each depositary has its own internal rules and requirements, it is advisable to agree the settlement mechanics with the depositories as soon as possible once it has been decided that the securities are to be settled through CREST.