AIM Review

“Investors have lost their appetite,” is the message coming from the market at the moment, and who would blame them? Witold Sawin reports

This is the stark message being echoed around the market, and, certainly, looking at the statistics of total funds raised and new admissions the facts seem to support this view.

However, in the same way that some properties are still bought and sold in a highly depressed housing market, there are still some successful fundraisings and admissions
on AIM.

Clearly the volume of these is well down on its peak, but whatever the market conditions, some deals will still take place and be attractive to an investor. Again, drawing a parallel with the housing market, it’s a matter of managing expectations.

Expectation Gap

Whenever there is a downturn in any aspect of economic activity there is a clear “expectation gap”. Sellers will be clinging on to yesterday’s valuations whereas buyers will have factored in tomorrow’s falls.

This expectation gap tends to cause a stalemate for a period of time during which a market adjustment or correction takes place. Sellers will be trying to do deals by looking in their rear view mirror while buyers will be looking forwards only.

Doing deals in this period is difficult, but not impossible given a willingness on the part of the sellers to acknowledge the new market conditions.


The current investor’s lack of appetite does not mean a total unwillingness to invest, but rather an unwillingness to invest on the terms being offered. A lot of this is down to the way in which deals are done. There is a natural tendency from brokers and fundraisers to factor in a premium on the flotation price. This works fine in bull market conditions, but in a bear market it simply doesn’t work.

The pricing of a new issue must take account of market sentiment and in a falling market that means factoring negative market sentiment to make the offer positively attractive.


Apart from price, the other key component of a successful float in a bear market is “quality”. There is always money on the table for a quality company. Quality, in this sense, is not to be confused with having a quality product – this can be negative as well as positive – but quality of earnings and management.

When markets go through a downward adjustment they automatically weed out marginal investment opportunities.

It would be impossible in today’s market to raise funds for, say, a new AIM cash shell. Such an investment would rank very low on the quality scale unless there were exceptional circumstances.

Well-Executed IPOs

On the other hand, a company with a good track record of strong earnings growth, in a popular market segment with good prospects and strong management, will probably still be able to launch a successful float even in today’s market conditions.

The AIM statistics simply reflect this weeding out process. The market therefore effectively imposes its own rules to supplement the formal rules to adjust to current investor sentiment.

To speak to accountancy firm Sawin & Edwards about AIM, contact Witold Sawin on or 020 7404 9700.

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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