AIM Performance Review

AIM’s performance this year makes for grim reading, but smaller companies are often quick to recover, writes David Smith.

The statistics of AIM’s performance for the first half of 2008 confirm the impression generally held by professionals operating in the market, and make fairly grim reading, at least in terms of investors’ appetite for providing new equity, whether for new entrants to the market or for existing AIM companies.

The trends that were starting to become apparent at the end of 2007 are now startlingly clear. AIM has started to shrink, with the total number of companies now standing at 1,657 compared to 1,694 at the end of 2007.

The number of genuine new admissions – leaving out readmissions following reverse takeovers, and transfers from the Official List – in the first half of 2008 was 46, less than half the 106 new issues in the same period in 2007.

If the same level of activity is maintained for the rest of the year, it will fall well short of the 207 new listings in 2007 as a whole.

The reduction in new issues is matched by a reduction in the funds raised by new entrants – £904 million compared to £3.5 billion in the same period last year and £6.5 billion for 2007 as a whole.

AIM’s performance in the first half of the year has reflected the overall uncertainties in the national and international economic climate and the generally falling levels of business confidence, but anecdotal evidence suggests that interest in AIM remains high at least from potential new entrants.

Indian Summer

The LSE continues to work hard to develop international interest in AIM and scored a significant success in May/June 2008 when four Indian companies came to AIM, raising in total almost £200 million. India looks to be an area of increasing interest for AIM – 52 Indian companies are now traded on the LSE’s various markets, having raised over £2.5 billion, and London’s cadre of AIM professionals are making regular trips to India to encourage new businesses.

The most active business sector on AIM continues to be the financial sector, although that is perhaps a misleading classification as it includes equity investment funds specialising in other sectors. Almost a quarter of the funds raised in the first half of 2008 (£913m) were claimed by the financial sector. Inevitably mining and oil & gas continued to be relatively strong sectors, raising £680 million and £660 million respectively in the period.

AIM Outlook

My experience suggests that smaller companies markets, while often suffering harder and sooner in a downturn, can be quicker to recover as the business environment stabilises and recovers.

The new issues market on AIM will continue to be quiet for some months, although M&A activity will continue to be strong. In the meantime Nomads and other AIM professionals are continuing to identify and work with the AIM entrants of the future and once investor confidence returns there will be no shortage of quality applicants to the market, many of them coming from the emerging international markets.

Deals Closing

While a stalling IPO pipeline and the liquidity freeze have sapped much M&A activity, AIM companies coming from a position of strength are still closing deals, writes James Crux.

AIM new issues statistics for 2008 to the end of September make grim reading, with 69 new companies having come to market this year compared with 162 ventures for the same period last year.

A combination of low share prices and liquidity issues have affected the ability of many companies to further their growth ambitions through acquisition, with banks turning off the tap and management reluctant to dilute existing shareholders out of sight. That said, acquisitive companies with strong balance sheets are coming to the fore.

Done deals

Companies with quality earnings, strong cash flows and well-followed management teams are still able to get deals done. One such company is Redhall, the engineering support services business steered by chief executive David Jackson, which has made an offer for AIM-rival Chieftain, which provides outsourced industrial and engineering support services.

The recommended cash offer has been pitched at 209.2p, valuing Chieftain at £18.6 million. Jackson insists the deal will bring “complementary engineering and fabrication capacity” to Redhall, as well as “an entry into the marine outfitting business”, while additionally boosting growth prospects in the group’s key sectors of nuclear and oil and gas.

In spite of the credit crunch, Redhall is in the midst of raising £20 million from institutional investors with the help of Altium Capital to part-finance the deal. Strongly cash-generative Redhall says profits for the year to September will come in ahead of expectations, buoyed by strong performances from the acquisitions completed during 2007. /p>

Veterinary services consolidation business CVS, led by former Vision Express boss Simon Innes, is also deal hungry. CVS has hit the acquisition trail once again, this time buying profitable Lancashire-based Rossendale Pet Crematorium in a deal financed through its own cash flow.

Innes, CVS chief executive, says the acquisition of a crematorium greatly enhances its portfolio of 151 veterinary surgeries and four veterinary laboratories, and will broaden its service range and expand its margins.

Recent maiden preliminary figures to June showed strong 60 per cent growth at the top line to £62 million in a highly acquisitive year, and fast underlying earnings growth.

DMG’s mini-spree

Fast-growing, debt-free and cash-generative all describe digital direct marketing outfit Digital Marketing Group, led by former McCann-Erickson high flyer Ben Langdon. DMG, boasting considerable financial strength, isn’t shirking from doing astute deals in current market conditions – instead, it continues to pick off astute, selective acquisitions.

In a recent spree, DMG acquired Prodant, a provider of training and development programmes, for cash and debt, Gasbox, a developer of direct voice marketing campaigns, and Cybercom, an IT systems consultancy, for £6 million cash.

ClubRunner deal

Even small fry are completing deals, with £5.5 million AIM cap ADDleisure, run by chief executive David Turner, having announced the £1.4 million acquisition of leisure management software outfit ClubRunner. ADDleisure, whose corporate brief is to “capitalise on opportunities in leisure”, sees ClubRunner as complementary to its range of intelligent booking software for the spa markets.

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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