Bircham Dyson Bell’s Andrew Chadwick takes a look at illiquid stocks, crashing share prices and why CEOs are scrambling to go private

It’s been a traumatic 12 months for many companies on the Alternative Investment Market. Bircham Dyson Bell’s Andrew Chadwick takes a look at illiquid stocks, crashing share prices and why CEOs are scrambling to go private

So far this year, more than 100  companies have delisted from AIM, with only a handful of new companies joining the market.  

This trend looks set to continue into the autumn as AIM companies consider the potential financial savings of leaving the exchange. The costs of staying on the market, including stock exchange fees and increased advisers’ fees, can be a strain for smaller AIM companies at the best of times. In addition, there is the management time in dealing with shareholders and the market, which can be an unwanted distraction for boards.

Simultaneously, the slowdown in the market, combined with poor liquidity,
has led to depressed share prices and difficulties for some companies in raising further funds. For those companies seeking to use AIM-quoted shares for acquisitions, lower share prices lead to greater dilution for existing shareholders, and sellers are now less willing to accept AIM shares as consideration.

Strategic rethink

In considering whether to delist, the directors need to think about what is in the best interests of the company and its shareholders. The short-term cost savings may be clear, but the directors also need to consider the longer-term implications of leaving the market and how it will affect the company’s ability to raise finance, fund acquisitions and attract and retain staff in the future as an unquoted company. Although leaving the market is easy, companies seeking to rejoin in the future will have to go through the whole admission process again and may not be welcomed back.

Long goodbye

To delist from AIM the company simply needs to pass a special resolution, which requires a 75 per cent majority among its  shareholders. For many companies, with only a minority of shares in public hands, this will not be a problem as the board and key shareholders will have sufficient holdings to pass the resolution.

The company must give the London Stock Exchange 20 days’ notice of the intended date of cancellation, which must be at least five clear days after the passing of the resolution.

The circular to shareholders calling the meeting must give the reasons for the delisting as well as any arrangements for shareholders to deal in shares after the cancellation of the listing. Most companies that leave the market appoint their brokers to provide a matched dealing facility, which gives shareholders a way of selling shares – if there are any buyers.  
Most shareholders will not want to hold shares in unquoted securities, while many institutions are prohibited from so doing and will have to sell their shares.

The company may give minority shareholders a chance to exit the company by, for example, a tender offer to buy back shares. However, to do this the company will need to have sufficient cash to fund any share purchases, together with the costs of the procedure; struggling companies looking to cut costs to the bone simply cannot afford to do this.another way

It is surprising how few companies leaving AIM have joined the PLUS-quoted market. This offers the benefits of a public market but with lower ongoing costs. In fact, several companies have been turned away by PLUS, which is keen to maintain its own quality threshold and does not want to be seen as the graveyard for failed AIM companies. This is one reason for the lack of AIM refugees joining PLUS.

In the long run, AIM will benefit from this clear-out of weaker enterprises. In spite of the slowdown, AIM companies raised £3 billion in secondary fundraisings in 2008, with a further £2.3 billion raised this year, suggesting that sound companies are still being supported by investors.

For more information about AIM, click here to contact Andrew Chadwick 
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