The AIM: Survival of the fittest

A local estate agent once put out a press release proclaiming that business was up 100%. When I suggested that was impressive he replied “well, I sold two houses last month instead of one.”

The latest annual Alternative Investment Market (“AIM”) annual survey 2012, published by Baker Tilly, might be read in the same spirit. It is a wonderful attempt to deny the statistics and boost morale:

“Both investors and companies remain positive”

“The relatively small growth of the market was not of major concern”

“The optimism felt around AIM’s current standing was replicated in the feeling about AIM going forward.”

The key statistics tell another story.

  • the number of companies dropped by 47 (2011) to 1,096
  • in the first quarter 2013, the number fell by another 4
  • the average market capitalisation fell from £57m to £56m
  • the number of IPOs by way of ‘introductions’ fell from 15 to 9
  • the number of IPOs fell from 45 to 44
  • total funds raised fell from £4,298m to £3,149m
  • Only 59% of AIM companies are UK based because mining, oil and gas account for 24% (33% by market value) of the total
  • the number of nominated advisers has fallen from 80 in 2007 to around 50.

It must be remember that AIM has the advantage that it is owned by the London Stock Exchange giving it respectability and financial stability (my guess is that AIM is significantly loss making).

AIM was established to supply smaller companies with early stage equity finance. At its peak in 2008 it had around 1,800 companies and was considered to be one of the most successful smaller equity markets in the world.

Its fall from grace is because it became caught in the Blair/Brown drive for growth at all costs and the reaction was a deluge of regulation which has virtually brought it to a halt.

The cost of applying for an AIM trading facility (without fund-raising) is around £500,000. This, in part, pays for the lawyers and the advisers to convince the Financial Conduct Authority that the deal is the holy grail of regulation – risk free.

The reality is that AIM is failing in its prime role of supplying early stage equity finance to Britain’s credit starved SMEs.

The fittest may survive but they are fast becoming a protected species.

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