Floating your business has never been easier – or at least that would seem to be the message from GrowthBusiness’ latest research of the IPO market in the UK, conducted in association with our sister publication Growth Company Investor.
In the first comprehensive survey of its kind, we examined every single initial public offering (IPO) on the London Stock Exchange’s AIM market over a five year period in a bid to discern the most active brokers and nominated advisers to growing companies. We not only discovered which brokers and advisers had the greatest financial pulling power, but also those that floated the most successful companies on the market (as measured by share price growth).
London – centre of the world
The first and most obvious fact our survey threw up was that London is now indisputably the centre of the world for growth companies. In all, a total of 779 companies floated on AIM between October 2000 and September 2005 – more than all the European stock markets put together (by a considerable margin). The budding entrepreneurs behind these ventures managed to haul in no less than £7.5 billion – an average of £9.65 million per company. Since September 2005, a further 118 companies have listed, raising a mouth-watering £2.7 billion.
Choosing a broker
Despite all these dazzling facts, in order to take advantage of AIM, you still need to choose the right broker.
‘This is no easy task,’ says Chilton Taylor of Baker Tilly, a leading accountancy firm for AIM companies.
‘By and large, the broking firm you use will depend on how much money you want to raise and which sector you are in (it’s good to have a broking house with key expertise in your area). And don’t forget about chemistry. Flotation is a stressful process. You need to gel with your advisers on a personal level if you want the best results.’
Taylor counsels that it’s often useful to take advice from experienced AIM professionals prior to appointing a broker. ‘When a chief executive comes to us, we can easily assess the situation and introduce them to people appropriate to their needs. It saves a tremendous amount of time.’
According to Dru Edmonstone, of investment bank Seymour Pierce, ‘Choosing the right broker and adviser is becoming ever more difficult because there are now so many of them. In the last year the number of broker/nominated adviser firms has jumped from 60 to 82.
‘While this is broadly welcome, I do get worried about the quality of some operators. The pressure to do a deal and earn a fee is very strong, and sometimes quality is sacrificed in the process.’
Edmonstone’s caution is well placed. If your business is not ready for a float, being exposed to a public market will be very painful. And even if it is ready, an inexperienced broker/nomad might undervalue your business, which means you will end up selling a proportion of your venture far too cheaply. Conversely, they might value it too highly, leading to the shares bombing when dealings start, wreaking havoc with your reputation among investors, clients and employees
It’s all about the money
‘While getting the right value put on your business is important,’ says Edmonstone, ‘the single most important question any CEO should ask is: can this broker get me the money? Many brokers and nomads fail miserably in this task. In my mind, those that have a successful track record of getting floats off the ground and raising the cash year after year are the ones entrepreneurs should be targeting.’
Collins Stewart heads the field of London’s leading brokers by the amount raised for clients over the past five years, having secured £1.7 billion as broker to 47 companies, as well as advising on flotations of £1.69 billion for 45 companies.
Much like its next nearest competitors (Numis and Evolution), Collins Stewart is renowned for raising significant sums for the largest companies on AIM.
It is not unusual for this firm to conduct fundraisings of more than £100 million, although, ‘Our sweet spot is companies worth £50 million raising £20 million,’ says Collins Stewart’s Stephen Tredget, ‘and the smallest might be a £20 million company looking to raise £10 million.’
Tredget says the type of company his firm is looking for ‘is one that could float in any market. Good quality management is crucial, because in peak periods, fund managers might see four or five management teams a day. We also want growth, and visibility of that growth with contracted revenues.’
To CEOs, Tredget is unashamed when he says Collins Stewart offers, ‘A top-tier service with undeniable placing power. But we also ensure the people chief executives talk to pre-IPO are the ones running the account going forward.’
Fourth in on the list is Seymour Pierce, AIM’s most active broker and nomad, having floated 96 companies as broker, raising £412.83 million in the process. It is a mid-tier broker, comfortable in the £5 million to £10 million fundraising bracket, although there are no hard and fast rules. ‘We try to be all things to all people,’ says Edmonstone. ‘At the minute, I’m working on an £8 million float while my colleague is working on one of almost £100 million. We are generalists, with no speciality in one sector or particular size. Growth prospects and great management is what we’re after.’
Other mid-market brokers of note are KBC Peel Hunt, WH Ireland and Teather & Greenwood, which have floated 42, 53 and 27 firms respectively.
Best-performing clients
By ranking AIM’s brokers according to the price performance of their clients, the upper echelon becomes dominated by many of the market’s smaller broking firms, with Canaccord, at number two, being the exception.
It specialises in the natural resources sector and has floated 30 firms as broker and 27 as nominated adviser, raising £291 million in total. That its clients have performed so well – the shares have soared on average by 178.49 per cent during the time period of this study – is unsurprising considering the bull market in oil, gas and general resources this past 18 months. This has been fuelled, in part, by the burgeoning demand of China, India and other new economic powerhouses, as well as the general instability in the Middle East.
AIM – a market for everyone
In terms of sectors, companies from the speciality finance arena lead the way with over 177 floats attracting no less than £746 million and posting collective share price gains of 60.2 per cent. This category includes an array of different types of firms from insolvency practices, independent financial advisers, cash shells and investment firms – especially those backing natural resource ventures.
AIM’s key institutional investors are also hungry for companies from key growth sectors such as support services, leisure and hotels, software and media, with the latter two attracting £610 million and £656 million respectively. Interestingly, entrepreneurs from the biotechnology field, not a segment of the economy that has been roaring in the past five years, still managed to float 33 companies on AIM and secure £248.9 million.
