AIM has been shrinking in size over the last four years and now has 822 issuer companies on its books, some 300 less than the Main Market, across every continent.
Despite this, AIM established itself as the preferred route for younger companies wanting to go public. In its 27 years of existence, it has raised some £123bn for 3,922 companies of all shapes and sizes, with 3,226 of those being UK-based firms.
Between January and April 2021, there were 21 new issues, with total money raised for the period amounting to £2.07bn. So clearly, the AIM market remains a strong option for young businesses looking to float.
It is commonly accepted that AIM is less regulated than the Main Market. The requirement that companies should have three years of trading history does not apply to AIM, shareholder approval is only needed for the largest transactions, and financial disclosure and reporting requirements are less demanding. Given you are seeking to secure investment from fewer than 100 shareholders with an AIM float, a firm will only need to produce a simpler, less costly “AIM Admission Document”.
Other supposed advantages of AIM are more intangible in practice. On paper the UK corporate governance regime does not apply to AIM companies – but in reality, businesses which expect to be taken seriously by institutional investors still need to show that they are more or less compliant. The AIM rules set no minimum “free float” limit, in contrast with the Main Market’s 25 per cent; but AIM companies with very restricted public ownership can suffer significant reduction in liquidity.
Regulations aside, there is a perception that Main Market companies are more highly esteemed than those on AIM. While this may be the case for some institutional investors, it’s not always as clear-cut. Most institutions are permitted to invest in AIM stocks, but they are potentially less inclined to invest, and the market has had little success so far in attracting the interest of non-EU investors.
On the other hand, the AIM All-Share index rose 26 per cent between the end of January 2020 and the end of March 2021, while the FTSE All-Share Index fell by 7.8 per cent. Similarly, in 2020 AIM saw a 27 per cent decline in the number of companies leaving the market, bringing the total to 55. However, the number of companies de-listing on the FTSE All-Share, rose 8 per cent to 53, with some of those joining AIM. On top of that, money raised by new companies joining the main market fell by 19 per cent to £2.5bn, while AIM only saw a decline of 1 per cent from £496m to £489m.
Making the shift
It is important to note that there is no fast-track procedure for AIM companies to move to the Main Market. In practice, they will have to go through the normal process. However, a strong AIM business will already have the cultural mindset of a company which has made the private-to-public move and will be used to corporate governance regimes and the making of timely and accurate disclosures to the market. This will help the business and its leaders’ transition to the Main Market effectively and without too many hiccups.
AIM to Main: a worthwhile move?
So, is it a worthwhile move for an AIM listed company? Well, that depends. There are clear benefits of both types of listing for companies and investors. Investors with shares in a standard listed company can be assured that financial reports, interim management statements, and annual information updates are all required to be swiftly released to the public. Similarly, a standard listing also allows prospective investors to refer to a UKLA-authorised prospectus when deciding whether to participate in a company’s IPO.
For the company itself, the increase in passive investment by tracker funds, and the stronger reputation of the Main Market amongst US investors is expected to improve liquidity in the shares. April 2021 was the third consecutive month of net inflows into passive products, with investors pouring $105.37bn into ETFs and ETPs according to research consultant ETFGI. Similarly, the Main Market can provide access to a deeper pool of capital to fund further growth.
However, some companies have had a poor experience of AIM which comes down to the business rather than the market listing – in which case a move could have negative connotations. Other businesses may have had a more positive experience, with some companies being seen to have “grown up” when they move to the Main Market, typically citing an increased public profile and having matured as a business as motivation for the move. Although the average size of AIM companies is increasing, it is not designed to cater for companies larger than £500m.
Clearly, the question should not be whether the move from AIM to Main is possible but whether it is right. Each of the markets have a purpose to serve, but companies need to be allowed to play to their natural audiences and not be bound to a move if it is not right for them.
Neil Shah is director of research at Edison Group