Article by Max Audley and Doug Wright

Most U.S. businesses start the hunt for additional rounds of financing with venture capitalists or the public U.S. markets. But in an economic environment where the domestic markets may offer a cold shoulder, there is an international market that offers an attractive source of funding that is tailor-made for growing U.S. companies.

What is AIM?

The Alternative Investment Market (AIM) is the London Stock Exchange’s global market for young and growing companies. Since it was established in 1995, over 850 companies have used AIM to raise more than $9.9 billion. In January 2001, the companies trading on AIM had a total market capitalisation of $25 billion, ranging per company from less than $3 million to more than $160 million. These companies represent a wide range of industries, including software and computer services, real estate, mining, oil and gas, pharmaceuticals, media and photography, construction and investment companies.

The advantages of joining a public market are well known. Providing capital for growth, encouraging employee commitment via stock options, obtaining funds for acquisitions and enhancing status and profile with customers and investors are all advantages offered by most public markets. Of course, there are disadvantages, too: extreme price volatility, tight regulatory scrutiny, high capital thresholds, and investor reporting responsibilities that occupy substantial amounts of management time.

AIM has been highly successful with young and growing companies largely because its flexible regulatory environment, compared with other public markets, minimises some of those disadvantages. Consider:

  • No trading record is required and there is no requirement for a particular percentage of shares to be in public hands

  • There are no minimum share price or market capitalisation rules

  • Vetting for suitability is the responsibility of the financial advisers, not the regulator

  • Companies do not have to comply with the full disciplines of the rules of the main London market

  • The disclosure requirements for companies entering into substantial transactions are less onerous, thus facilitating growth through acquisitions

  • There are certain tax benefits that may be an advantage for some investors in AIM companies

Should a U.S. Company Consider an AIM Listing?

London is one of the world’s leading international centres and by far the largest in Europe. The UK has excellent business, cultural and diplomatic links with the United States and is also a major force in the European economy and community, creating an ideal environment for any U.S. business looking to develop its presence in Europe. Few places in the world are home to as many of the professional advisers necessary to the smooth functioning of stock markets. For example, there are 565 banks from 76 countries based in London with net overseas earnings of more than $32 billion a year. There are more U.S. banks operating in London than in New York and more Japanese banks than in Tokyo. London is a recognised centre for international listings - over 500 international companies are listed on the London Stock Exchange, with a combined market value of more than $5,800 billion.

The case for London as an international equity market is clear, but what about the relevance of AIM for a U.S. company? AIM is ideally suited for small or medium size businesses. In many cases, young companies, with a relatively short record of trading, would be unable to join the London’s main market and AIM provides the perfect alternative for such a company, where a UK or European presence is desired. However, any company considering an international listing must have a clear business case for doing so and must be prepared to deal with the problems of raising the profile of a U.S. company and its directors in a foreign country. Those companies with an operating presence in the UK or Europe would naturally find this easier.

U.S. Company Case Study TranXenoGen Inc
Market Cap (September 17, 2001) $142 million

TranXenoGen Inc is a biotechnology company based in Shrewsbury, Massachusetts that manufactures therapeutic proteins such as monoclonal antibodies, using genetically engineered chickens. Dr Kim Tan, the non-executive chairman of the company talked to us about his reasons for choosing the UK and AIM as the equity market for TranXenoGen.

Why the UK?

"Much of the initial funding for TranXenoGen came from high net worth individuals in the UK and we knew many of the fund managers in the UK already. Also, investors in the UK make their investments over the long term. Markets are less volatile. There is less day trading and margin trading. When you have a good story to tell and have a shareholder base, your investors show more loyalty than many in the U.S."

What about the U.S. markets?

"At the time we had a market capitalisation of approximately $60 million and this was too small for NASDAQ. The U.S. markets were too volatile for us and there were too many biotechnology companies already listed in the U.S. AIM suited our size and our stage of development. AIM gave us the means to raise funds and raise our profile, and ongoing investor relations were not too demanding on management time."

What about other European Markets?

"I feel that EASDAQ belongs to nobody as a market and the German Neuer Markt was already weakening when we were looking at our listing."

How has the experience of an AIM listing been for TranXenoGen?

"We are happy with our listing on AIM. My only criticism is that the market needs more support on an international level."

Next Steps

A public listing is not always the correct strategy for a business at any given time. Similarly, the advantages and disadvantages of an international listing for a U.S. company must be carefully considered. But businesses looking for capital to fund growth in a difficult market – particularly those businesses focused on international expansion – may wish to discuss the options available to them.

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.