Not long ago IPOs were the answer to many entrepreneur's prayers – a listing on AIM was seen as a quick and efficient way to access funds allowing small and growing companies to expand quickly.
Since the collapse of Lehmans however, the world has been a very different place. The flood of applications to list on AIM has become a trickle and being listed on a "growth" market has for many companies been a big disappointment as investors become more cautious and choose to place their funds only in "blue chip" companies (now excluding Banks!)
In 1995 AIM began as a market for small companies with big plans who found difficulty in accessing capital using traditional routes, in many cases they lacked assets or cashflow to allow debt funding on any scale equity funding was the only option. The flexible regulatory environment provided by AIM has attracted over 3,000 companies from around the world but there is no doubt that the current economic climate has led to a serious image problem for the market. Companies currently listed in many cases are disillusioned with the valuations now placed on their business and those contemplating a listing are thinking long and hard about whether AIM is the right market to choose.
The reality of the situation is that in times of trouble, investors look for a safe haven for their funds and are concerned more about preservation of value than any increase. For some of the companies listed on AIM this has caused major liquidity problems and has led them to curtail expansion plans as funding has dried up. However, there are a variety of companies who have done well throughout these difficult times and which have been in a position to raise both equity and debt to allow them to continue with their growth ambitions. From this it is apparent that being listed on a "growth market" is not necessarily the biggest issue that concerns investors, in fact they are more concerned with the underlying health of the business and the sector in which it operates.
As we move into a new decade, I think AIM will once again become more attractive both to companies and to investors. The availability of debt funding continues to be restricted and as equity markets are starting to show signs of life once more, IPOs will be back on the agenda for many companies. Investors are getting low returns from most investment classes and are starting to look for opportunities to invest in companies that provide the opportunity to make significant returns. Changes to restrictions on VCT investments would also improve the situation by releasing more funds for investment on the AIM market.
AIM continues to have a flexible regulatory regime and the costs of listing are decreasing. Whilst valuations are generally now at a lower level, statistics show that companies who go through the flotation process can in general anticipate their valuation being higher than if they had remained private. For companies considering flotation on AIM, the key issue may well not be the valuation itself but the rationale for moving to the public market and the quality of their business. Companies need to understand clearly that an IPO is only the start of their journey and management will require to continue to market the company once the listing has taken place. Only by maintaining liquidity and producing good results can the Company hope to maintain or increase its valuation.
2010 is a year of opportunity on the AIM market and for those considering an IPO getting the timing right to take advantage of cash which has been hoarded in 2009 and is now looking for a home will be key.
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