Changing times

The first quarter of 2007 has been anything but dull for companies on AIM, with hostile bids and new tighter rules for nomads to the fore.

Steve Douglas from nomad and broker Arden Partners reviews the first three months on the market.

The Alternative Investment Market, London’s junior market for smaller and/or fast growing companies, has seen an interesting start to 2007.

In February, the London Stock Exchange (AIM’s owner) successfully fought off an unsolicited and particularly hostile takeover approach from Nasdaq. Its successful defence may go some way to explaining subsequent comments from the US Securities and Exchange Commission which likened AIM to a casino and from the NYSE which claimed that any company could list on AIM. The timing of these comments appeared to be a case of sour grapes but if Wall Street was looking for a war of words it will have been very disappointed, the London Stock Exchange’s response has been to make no response.

Also in the first quarter of 2007 companies have seen the introduction of tighter rules governing their behaviour on the AIM market and nominated advisers have also had a rulebook of their own brought in. Both moves mean that there is now a greater level of intervention and regulation on AIM but nevertheless the requirements remain clearly below those of the Main Market. AIM remains flexible and allows companies to move swiftly to implement their plans.

As well as this unhelpful publicity and increased regulation there has been the negative wider economic background to contend with. The economic news so far in 2007 has included threatened tax increases in China, the possible unwinding of unquantifiable yen borrowing positions, the disaster that could be the US sub-prime housing sector, increasing inflation in the UK, rising worldwide interest rates and the re-occurrence of increasing tensions in the Middle East. With this background in mind you would be forgiven for thinking that AIM might have had a horrendous start to the year.

But nothing could be further from the truth. The AIM Index is up by 8% over the period 1 January to March 23, 2007 (the FTSE 100 and the FTSE All Share are both up 2%) and AIM-listed companies raised nearly £1.5 billion in January and February alone. Furthermore the average size of each of these fundraisings remains at the much higher average levels that we saw last year. A further 34 companies joined the AIM market in January and February, of which six were international companies helping AIM maintain its mantle as international market of choice.

Perhaps the most surprising statistic regarding AIM from the first quarter of 2007 relates to trading volumes. The average amount of shares traded daily on AIM, in monetary terms, is up 25% from that achieved during 2006 and while the first quarter of any year is historically above average, this statistic indicates that the liquidity of AIM stocks is continuing to improve dramatically. More than 60% of investment in AIM companies now comes from institutions, which is seen as a mark of its maturity and success.

So what for the remainder of 2007? AIM appears to be in good shape and has enjoyed a solid first quarter. It has outperformed the main UK indices and business volumes – in trading levels and corporate activity – have been very strong. The tax changes announced in the Budget should not have a huge impact on the performance of AIM, the number of companies intending to float is promising and the appetite of institutional investors remains high. Therefore the risks to AIM appear to be at a macro level – without them casting their shadow we would confidently be predicting a roaring 2007.

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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