On paper, AIM would appear to be an M&A paradise for cash-rich companies on the hunt for weaker prey. That hasn’t quite materialised, largely because caution has been the order of the day for shell-shocked CEOs, brokers and investors.
As a result, activity on the junior markets has been limited mostly to secondary fundraisings, although serious sums have been raised. For dealmakers like Charles Simpson, a partner at Saffery Champness Corporate Finance, it’s been a case of adapting to a radically different environment.
‘Clearly, there has been a reassessment of risk in the past year or two,’ he says. ‘People are looking for investments that have a lot less risk attached to them. Understandably, they want a greater certainty on returns, but at the same time there is only so long that you can leave your money in the bank earning half a per cent a year.’
Although investors have kept their hands in their pockets and IPOs have been on hold, Simpson and his junior markets team of seven have been busy on a number of transactions. Specialising in the lower to middle end of the junior markets, high-value deals the firm has worked on include the merger of independent IFAs Sumus and Lighthouse Group and the buy-out and delisting of Telent, a telecoms services business with revenue of over £310 million. Says Simpson, ‘There is definitely more buzz about AIM, as a realistic option, than there was 12 months ago.’
Much of the work for Saffery of late has been around reverse takeovers. ‘The stock market seems to be showing at least some form of recovery, and that will always be positive in terms of businesses looking for admission. A number of companies are ready to IPO – effectively, they’re beginning to queue up and wait for the markets to reopen,’ comments Simpson.
Substantial interest is coming largely from overseas companies, notably those based in China, India and the US, says Simpson. The last of these may come as a surprise, given how US ventures have had a mixed experience on the exchange: ‘ US companies are continuing to look to AIM, where the regulatory pressures are less onerous. For these companies, it’s also about getting into Europe, establishing a presence and gaining market visibility.’
Companies opting to delist have also presented opportunities for Saffery during the past 12 to 18 months. ‘There have been a number of businesses looking at going private,’ says Simpson. ‘I’m not sure this will carry on at the same rate because as the market improves they won’t be as easy to execute because the value will drift away.’
An area where momentum appears to be gathering is PLUS Markets, the exchange for junior companies set up by the former head of AIM Simon Brickles. ‘For smaller businesses that might have moved to AIM a few years ago, PLUS is now more attractive as AIM seems more suited to larger entities. Businesses worth £2 million to £3 million are looking to PLUS as the place to list.’
Lower costs and less intensive regulation are the two prime reasons for the market’s expanding reputation. ‘There are still investors who are watching how it works before they drop in large investment sums, and you also have the problem that a lot of businesses coming to PLUS are untested and untried, so there are going to be some which fall by the wayside. The market has a long way to go to get to where AIM is now, but if you reflect back 13 or 14 years and see where AIM began then you realise that you have to start somewhere.’
Simpson’s own experience at Saffery seems to bear this out – his team recently acted on the admission to PLUS of World Mining Services and is working on a number of other ventures that should be coming to PLUS within the next couple of months.
When it comes to challenges, Simpson admits that fee pressures are making life harder, but then that’s true for all corporate advisers. ‘We strive to maintain our fees at a level that is reasonable for both our clients and us – you need to strike that happy medium. But it is difficult in a competitive market, and we have seen other firms going in with very low quotes just to keep their business ticking over.’
Overall, Simpson says he’s content with the range of transactions the firm has been involved with across PLUS and AIM during these testing times. ‘As a business, I think we’ve managed to ride the storm pretty well over the past couple of years. We’ve retained staff and clients and maintained income levels, all of which is very positive.’