The struggles of the Alternative Investment Market (AIM) have continued in the past year, with 18 per cent more companies quitting the market and a 55 per cent drop in IPOs compared to last year.
Reasons range from financial stress to continued low commodity prices affecting a market that heavily relies on small oil and gas explorers and emerging markets mining companies.
These figures, calculated until the end of March, were released today from UHY Hacker Young, a national accountancy group, which noted that a total of 105 companies delisted from AIM and only 35 companies floated in the past year, giving a net decrease of 70 companies from the exchange. This is substantially worse than last year, which saw a net decrease of 12 companies, and the prior year, which saw a net loss of just three.
Laurence Sacker, partner at UHY Hacker Young, says: “The resolutely low oil price, the continuing slack Chinese demand for commodities and the lower-risk approach taken by NOMADs have combined to make the past year a very difficult one indeed for AIM.”
Governance issues add to financial strain for delisted companies
According to the firm, the main reason for companies leaving the junior market was financial stress and insolvency (for 27 companies). This is the first time this has been the case since the 2009/10 period, the worst year for de-listings in AIM’s history.
A further 20 companies cited resignation by their Nominated Advisor (NOMAD) for their departure. AIM listed companies need a NOMAD to represent them in the junior market. However, these NOMADs may resign their position, especially if they feel the company has become a reputational risk to them. If a company is unable to secure a replacement NOMAD, it is an indicator that they may be experiencing significant financial distress or governance problems.
Risk averse NOMADs
UHY Hacker Young says that Chinese companies have been particularly affected by the risk aversion of NOMADs in the last year, with uncertainty over corporate governance leading many NOMADs to drop Chinese AIM companies. “China has long been a good source of companies for AIM, but with NOMADs now gun-shy over representing Chinese clients, Chinese companies may now choose to look elsewhere,” Sacker added.
Record low levels of IPO activity
In the past year, only 35 companies floated – a decrease of 55 per cent from last year. The amount of funds raised for IPOs also fell to £624 million – a 53 per cent decrease from 2014/15.
This total was raised substantially by the late March float of student accommodation developer Watkin Jones, which raised £131.3 million, the largest IPO on the junior market in more than two years. “Without the Watkin Jones float, money raised in AIM IPOs in the past year would have been the lowest in more than a decade, showing just how little demand there is for high-growth companies at present,” Sacker explained, seeing this as part of a broader slowdown, with 21 IPOs in the US being cancelled in the first quarter.
UHY Hacker Young says that 28 per cent of companies that de-listed from AIM last year were mining or oil & gas companies. Dwindling metal and oil prices – caused by the Chinese slow-down and a major oil supply glut – have plagued resources companies over the last years and have created a tough environment for smaller resource companies to survive.
Sacker’s forecast for the year ahead follows this downward trend: “There doesn’t appear to be any immediate respite on the horizon for any of those issues, which suggests that the coming year may not deliver the upturn AIM companies are hoping for.”