Making the most of junior markets like AIM

AIM is a well-established source of capital and forum for deals, while the PLUS Quoted market is striving to carve a niche at the junior end of the corporate spectrum. Winners of the Growth Company Awards tell Robert Tyerman how they are seizing the opportunities that these exchanges provide.

Floating a company isn’t a decision that’s taken lightly at the best of times, let alone when investor confidence is low. In the first four months of 2008, 23 companies raised £349 million by listing on the Alternative Investment Market (AIM), compared with 59 companies generating £1.4 billion for the same period in 2007.

While raising funds is undoubtedly harder now, going for a public quote remains one of the best ways to enable your business to grow. For that to happen, you will need a broker, nominated adviser (nomad), lawyer, accountant and a host of other experts to make your float a success. The Growth Company Awards 2008, held by Business XL’s sister title, Growth Company Investor, rewards the cream of the City’s advisers in the public space.

Head man
Andy Stewart is chief executive of Cenkos Securities, which bagged AIM Broker of the Year. He was instrumental in setting up AIM in the first place, through conversations with Brian Winterflood of share dealer Winterflood Securities and Andy Brough, investment chief at Schroders. That was when Stewart was at broker Collins Stewart before he founded Cenkos, which is itself AIM-quoted.

He says: ‘AIM has fewer barriers to entry than the Main Market, but the rules have now been tightened to stop the nonsense companies. At one point, people were floating the contents of their garages on AIM, but now the nominated advisers have the responsibility to check things.

‘Personally, I would never float any company unless I had visited it to see what it did, but until recently there was no such need on AIM.’

Stewart is adamant that today’s tighter regulation ‘is pure common sense’. He recalls Cenkos floating Chinese lottery operator Betex, now suspended after allegations of law breaking by local staff. ‘We resigned because the company would not do what we told it to,’ he says.

Cenkos does a significant amount of pre-float fundraising, which wins ‘quite a big audience’. Stewart, who goes to China regularly, says he is sure ‘the Chinese will try to copy AIM’.

Simon Hayes, chief executive of KBC Peel Hunt, AIM Adviser of the Year, has no doubt as to why his firm has established its formidable position in that market. ‘With smaller companies, you need to take a long-term view and we genuinely act in the interests of our clients over the longer term.

‘We are not quoted. We are not for sale and we are not interested in ramping up prices for a quick turn,’ he states, citing SCI Entertainment, for which KBC raised around £3 million on AIM in the 1990s and recently advised on a £60 million Full List funding as an example.

Hayes sees ‘an increasing vogue for companies to change advisers and brokers for short-term reasons’, which he suggests could be more to do with companies coming to market that ‘promise one thing and deliver something different’.

The key, says Hayes, is ‘to have a fairly honest dialogue with the client before and during the flotation process and continue it afterwards’. There can, however, be big differences between overseas companies and British ones. ‘The Americans tend to speak to their lawyers before they talk to us,’ he says.

Another priority is to ‘instil into your clients the importance of being open. We must tell them to keep us informed. The hardest thing is to remember you cannot assume clients know what you know. It is a big educational process.’

Like Stewart, he believes that AIM is now more rigorous and the economic situation is separating the wheat from the chaff: ‘Many companies came to the market that should not have. The competitive landscape is about to change a lot and the bloodletting has started already.’

On the up

As PLUS Adviser of the Year, St Helen’s Capital has undergone a period of transition, absorbing a strong team from finance group Daniel Stewart, including chief executive officer Ruari McGirr. Executive director Barry Hocken says the company has advised on 100 PLUS floats and now advises 33 PLUS Quoted companies.

St Helen’s has several potential entrants at present, including Zeta Compliance Technologies and New York-based DRT Entertainment. Hocken says St Helen’s now looks for better quality PLUS candidates, with track records, existing revenues and solid management.

‘It is becoming ever harder to raise money for start-up companies so we have taken on fewer companies but of better quality,’ he says. ‘PLUS is a good place for clients to learn about operating in a public market, with its procedures and corporate governance obligations, but without regulation as onerous or continuous as AIM.’

At the same time, however, Hocken believes that PLUS Markets has ‘neglected its primary, PLUS Quoted market’ and does not make life easy for advisers. ‘We made an application and PLUS came back with questions that were not in its rulebook. We know and abide by the rules, but we cannot second-guess them. It can be most frustrating.’

Tomorrow’s blue chips

Harry Nimmo of Standard Life, manager of the Small Cap Fund of the Year, has been pursuing an unchanged prescriptive investment policy for over 11 years, during which time the fund has grown 400 per cent. Quite simply, he aims to ‘buy tomorrow’s larger companies today’.

He says: ‘I am growth and momentum oriented and risk averse. I prefer companies making money and I don’t invest in concepts or blue sky.’

Nimmo’s top holding is online fashion retailer ASOS. It has quadrupled in value already, but he feels ‘it has a long way to go’. Others that he likes include software concern Aveva, gambling group Paddy Power, funeral business Dignity, Telecom PLUS and JKX Oil & Gas.

As Analyst of the Year, Francesca Raleigh of Numis Securities enjoys covering the varied support services sector. A former paper, packaging and printing analyst, she prefers to stick to niches within this amorphous group. These include white-collar consultancies, such as engineering specialist WS Atkins – ‘but not recruitment’ – and blue-collar equivalents such as Connaught and Mears.

‘If you cover too many isolated companies without peers, you have no reference points. It’s always a good time for support services. Many have public sector exposure, which gives them defensive qualities, and will shoot up in good times,’ she says.

‘The AIM companies I cover are as helpful and knowledgeable as if they were fully listed. They are often relatively new and fast growing – but you do need to cherry pick.’

A helping hand

Chris Searle, corporate finance partner at BDO Stoy Hayward, AIM Accountant of the Year, says this market has become a big part of the firm’s business: ‘We have handled more than 100 AIM floats in the past three years and I have done 70.’

Searle says it’s often a case of acting as guide and mentor: ‘On AIM, they tend to be young companies run by people without public company experience and that makes it all the more interesting.’

He has spent the last two of his eight years at BDO working with AIM companies and says the firm has ramped up its offering as market activity revived with the resources boom. He sees this as partly ‘the fruits of the internationalisation campaign by the London Stock Exchange’.

This has led to BDO, with offices in 100 countries through its membership of BDO International, sending teams to AIM candidates around the world, from the US to China. Well travelled by now, Searle argues ‘the next challenge for AIM is to attract more international investors’.

David Collins, head of corporate finance at Berwin Leighton Paisner, AIM Lawyer of the Year, says the firm has been involved with AIM since the market’s inception and has advised companies or nominated advisers or brokers on 97 floats, raising £2.4 billion since 2002.

Claiming strengths in property, hotels, betting and gaming, technology, healthcare and resources, Collins says AIM is ‘good for business’, especially with consolidation in many sectors in the offing. ‘We have also taken AIM companies up to the Full List and brought some down from there to AIM,’ he says. ‘In the float process, you get a strong sense of when something needs to be disclosed. Disclosure becomes more of an issue once a company is listed.

‘The key is to convince clients they should come to a lawyer for advice before doing things. Often entrepreneurial characters with a sense of false economy go ahead with a deal without asking their lawyers – and find it costs more than if they had asked the lawyers first.’

Tim Thompson, partner of Financial PR of the Year Buchanan Communications, claims the firm has several strengths. ‘We have a flat management structure, which helps us relate to AIM companies. They don’t usually have in-house public relations capabilities and don’t want to be passed on to a junior without experience.’

Buoyant engineering services group Redhall won AIM Company of the Year, which complements chairman David Jackson picking up the Quoted Company Awards’ Entrepreneur of the Year 2008 (see March edition), while Beringea won VCT Fund Manager of the Year for its ProVen and ProVen Growth & Income VCTs.

Ready to build

Norman Kenvyn, head of equipment leasing specialist St Helen’s Finance, is looking for potential acquisitions for the company, winner of the PLUS Company of the Year award. He says St Helen’s, which finances ‘core assets’ for smaller companies, is winning new business as banks harden their terms in the credit crunch.

A Lombard leasing group veteran, Kenvyn notes a rapid turnover increase this year for St Helen’s, which more than doubled the value of equipment leased last year to £4.6 million and year-end receivables to £6.7 million. Bad debt write-offs and doubtful debt provisions doubled losses in 2007 to £312,000, but income from the company’s expanded lease book should take it into the black to the tune of more than £100,000 this year.

A pet ploy of Kenvyn’s is to build the nascent ‘venture financing’ business of St Helen’s, which takes an element of equity in lessee companies along the lines of mezzanine debt funding. This is where he is scouting for acquisitions.

St Helen’s has used PLUS several times to raise equity since its 2004 float and has increased its debt finance by 151 per cent last year to £5.6 million – ‘all fixed and matched’ – to support growth and fund its (typically) 36-month leases. ‘We do not specialise in particular sectors,’ explains Kenvyn, but he tends to shun those, such as retailing, where ‘too many lessors are chasing business’.


Robert Tyerman

Robert Tyerman was news editor of 'Growth Company Investor'.

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