With nine new issues on the main London stock market so far this year, and more than 43 deals on AIM, one could be forgiven for asking, which is the main market, exactly?
Both markets are seeing accelerated levels of activity. The main market had five IPOs in the period from 1 January to 14 April 2003, raising just £78m. The figures for the same period this year are nine deals (three trading IPOs), raising £810m, though much of this came from the dual London-Dublin listing of Eircom, raising £544m.
For its part, AIM had nine IPOs over the first quarter of 2003, raising £7.8m, whereas this year the 43 IPOs in Q1 have raised £513m. There were more IPOs in April.
According to a London Stock Exchange representative, AIM is doing its job as the market for fast-growing companies, and the main market is doing its job – which is to be the natural home for mature heavyweight companies.
Apart from the sheer volume of new deals, what tends to blur the AIM market/main market picture further is the size of the market capitalisation of some of the companies now camped on AIM. There are a handful of mining companies, in particular, that are worth in excess of £200m and one exceeds £300m. This is not your na’ve, aspiring small player that AIM was originally designed to be in business to accommodate.
For Philip Secrett, corporate finance partner at Grant Thornton, the deeper picture is still of two distinct markets doing different jobs, even if AIM’s original purposes have metamorphosed into something richer and stranger. “What we have today is a much sharper polarisation between AIM and the main market. Unless you are capitalised at £100m, or probably at £200m, you are simply going to be part of the main market’s unloved rump, where you are unwatched, unnoticed and unremarkable. On AIM, a company of this size has a chance to shine,” he says.
There are other excellent reasons for being on AIM. Neil Austin, head of new issues at KPMG Corporate Finance, says the main market does not offer you capital gains tax taper relief for holding your shares. Having just 10% tax to pay after three years instead of the usual whack is a decent shove in the back for any director teetering between AIM street and main street.
Second, the costs of launching on AIM tend to be lighter. The key thing on AIM is that while you have to prepare a solid prospectus for a float, it can be signed off by your advisor. On the main market, every document is vetted by the listing authority, and this tends to be an iterative process that can take months. On AIM, if you had a well-prepared prospectus in your back pocket, this could take an afternoon. This difference in speed is the crucial enabling element that has opened the door to ‘accelerated IPOs’ that are actually a means of acquiring a company using investors’ money.
Fortunately, AIM will not now be affected by the new European Union directive on prospectuses. The EU is looking for tighter regulation of markets and there had been fears that this directive would do away with much of the incentive for companies to choose to list on AIM by increasing the regulatory cost and burden.
In fact, the LSE has struck a deal with “the relevant authorities” that AIM will continue to be a Stock Exchange regulated market. In other words, it will continue to be regulated by the LSE itself and will be without the provisions of the directive, even when it passes into UK law.
Harry Nimmo, head of smaller companies at Standard Life Investments, reckons that had the EU managed to scoop up AIM within its regulatory ambit, the effect could have been dire. “What the EU was worried about was the kind of abuse we saw sink the German alternative tech market – the Neuer Markt.” At the height of the tech boom, we saw floats on the back of prospectuses that turned out not to be worth the paper they were written on.
“AIM is always a ‘buyer beware’ market, but investors know it is a well-run and well-regulated market for high-growth companies,” Mr Nimmo says.
You may not want to bet your entire pension on it, but you would probably like to see it well represented in the slice you’ve set aside as your speculative, fast-growth pot.
TOP FIVE NEW ISSUES ON AIM (Jan-March 2004)
Company Name/Category/Market cap/Amount raised
Source: London Stock Exchange.