London’s Alternative Investment Market (AIM) attracted 49 new companies last year and raised nearly double the previous year. It has also received approval to register the AIM as an “SME Growth Market,” a new designation established by the European Commission to create regulations that are better suited to small and mid-size companies.
The London Stock Exchange believes the designation should increase the profile of smaller markets across the EU. But what does going public on AIM in 2018 really mean for SMEs? Ashfords’ Andrew Betteridge believes these new changes are a sign of positive things to come as he explains why AIM is still relevant for growth businesses.
Against an increase of 63 per cent in the overall number of companies floated on the London Stock Exchange in 2017, AIM, the alternative investment market for smaller companies, has also seen significant growth.
49 companies floated on AIM in 2017, raising a total of £2.1 billion, up 97 per cent from the £1.1 billion raised in 2016. The average amount raised per company rose by 52 per cent, from £28 million in 2016 to £43 million.
As Marcus Stuttard, Head of AIM at the London Stock Exchange, commented: “The ongoing success of AIM this year is one of the many signs of its increasing maturity as a market and its ability to fund the real economy.”
AIM – a market for growth companies
Established in 1995 as the Alternative Investment Market, AIM is intended to meet the needs of smaller companies by providing a more flexible regulatory environment.
In particular, it gives access to market finance to companies which would not meet the criteria for admission to the LSE’s main market, because they are at an earlier stage of development.
AIM is regulated separately from the main market, and companies admitted to AIM are subject not to the listing rules but to the simpler AIM rules. It is possible to gain admission to AIM without a trading record, an established management team or any minimum market capitalisation.
A key feature of the AIM regime is the appointment by every AIM company of a nominated adviser. The nomad (as they are known) is responsible for assessing the company’s application to AIM and for advising the company, once admitted, on its continuing obligations under the AIM rules.
Why consider admission to AIM?
The main reason why a company might seek admission to AIM is to raise equity finance, both at the time of admission and in the future. Admission also provides existing shareholders, such as venture capital houses, with a means of realising their investments, though there may be restrictions on the sale of shares for a period after admission.
Shares issued as part of an employee share ownership scheme are likely to be more attractive to employees if they are tradable on AIM. Finally, admission to AIM will place a value on the company, potentially assisting it to make acquisitions, and raise the company’s profile generally.
Although AIM is regulated more lightly than the main market, admission is likely to take up significant time and cost, with legal, financial, accounting and broking advisers all needing to be consulted.
Among the documents likely to be required are a nominated adviser and broker agreement, a placing agreement, a relationship agreement (if a single shareholder holds a significant percentage of the company’s share capital) and a lock-in and orderly market deed. An admission document or prospectus will also be needed.
Once admitted, the company will be subject to ongoing disclosure obligations, including a duty to announce, without delay, any developments not already in the public domain which, if made public, would be likely to lead to a significant movement in the price of its shares.
An SME growth market
The LSE has recently applied for AIM to be registered as an SME growth market, a new designation developed by the European Commission as part of its plan to create a bespoke framework for growth markets.
The immediate effect of such designation on the AIM rules will be minimal, but it is expected that designation will enable future market regulation to be more tailored to SMEs, as well as raising the profile of SME growth markets more generally.
An option for growth
SME growth markets such as AIM have an important role to play in enabling smaller companies to grow and scale their business. Listing on AIM will not be appropriate for every growth company, but it is an option worth considering by companies of an appropriate size seeking further investment.
Andrew Betteridge is a partner and head of the corporate and commercial team at Ashfords LLP.