‘Institutional capital’ key to AIM’s international appeal

The large pool of investors willing to look at high-growth companies from across the globe is crucial to the platform attracting businesses from markets in Asia and the Americas, according to Allenby Capital experts

The London Stock Exchange AIM market is still attracting many of the top high-growth businesses from across the globe twenty years after its launch.

In an exclusive chat with Growth Business, three experts from nominated AIM broker Allenby Capital gave their views on why its success has endured for this long – together with what the future holds.

With the 20th anniversary of AIM’s launch celebrated in June of this year, there has been a big focus on the London Stock Exchange’s junior platform and its comparative status now and at its birth.

A quick look at the top-tine figures gives a mixed message. Clearly there has been some spectacular growth in some areas – the value has rocketed from £82.2m in 1995 to £73.5bn today. At the time of launch there were only 10 components on the market and now there are almost 1,100.

Post-recession challenges

But this progress hasn’t come without a decent number of challenges. The current valuation is significantly lower than the 2007 peak of £97.6bn; and at the time the platform housed almost 1,700 companies.

It’s not hard to work out that the financial crash was the event that curtailed the market’s progress in 2008. But while other similar organisations collapsed altogether under the strain of prolonged recession, AIM was robust enough to survive and has seen some great success stories since then.

>See also: Allenby Capital on how crowdfunding will affect the equity sector

For all its ups and downs, one encouraging sign is that increasingly fast-growth and high-potential businesses joining the platform come from a plethora of both established and nascent markets.

A report by Allenby Capital itself shows that of the six companies to join in May 2015, there are entries with their operations based in USA, Malaysia and even Barbados. As in any market, diversity is strength – so it’s key that these global businesses continue to see AIM as the best option.

Allenby Capital corporate development specialist Katrina Perez believes focusing on the type of investors looking at AIM, along with the financial clout they provide, is the key to making sure this is the case.

“The pool of institutional capital that is prepared to look at all of these growth companies is one of the biggest factors,” she said.

“AIM is quite unique in this way. In the US they don’t have the opportunity to see the range from institutional right down even to some of the smaller retail clients that London has to offer.”

Despite its long-term stability, AIM has endured a tough start to 2015. In May £433m was raised on the platform; a 21% year-on-year fall from 2014. And the number of companies on the market fell from 1,104 at the start of the year to 1,074 at the start of June.

Allenby sales director Graham Bell believes the market may still be feeling the effects of several technology companies coming to the market with “quite fanciful valuations” in 2013. He singles out Outsourcery and Blur as particular examples.

“They came to market at values that turned out to be unachievable,” he said. “Not only were the valuations themselves quite expensive but they were very much on a relative basis rather than an absolute value basis.”

>Related: Why AIM is an attractive alternative to NASDAQ for growth companies

Steadying the ship

But 2014 went some way to steadying the ship, according to Bell. And among the businesses that do go on to succeed on AIM, there is again a diversity that gives the platform strength and stability.

The biggest success stories range from German real estate company Sirius to Domino’s Pizza and Sierra Leone’s African Minerals (pre-disastrous Shandong takeover). And Perez confirms that even today “there is not one dominant sector on the market”.

“But that benefits the market because valuations don’t tend to get over-egged when there is no one hot sector. It makes for a more even market. It’s important to note that although AIM is very much about growth companies, that doesn’t necessarily mean early-stage companies,” she said.

“So as companies become more established the sector becomes less important and the growth story becomes much more important.”

So even though AIM may have had a tricky first half of the year, it is more than established enough to weather such short-term dips. And its ability to attract companies from across the globe is at the heart of that. Some 31 of AIM secondary fundraisers for 2015 come from Africa; with a combined value of £97.54m.

But for all this international traffic, there is still the need to keep the UK-based business at the core. Bell believes that AIM, still being unique as a successful second-tier market in Europe, still has “a great opportunity to capitalise on international companies”. But he stresses the importance of not overlooking domestic opportunities.

“Ultimately you need to have that core of UK companies that demonstrate it is a platform for the future,” he concluded.

Further reading on IPOs: The AIM bounce-back

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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