AIM IPOs setting sail

As AIM begins to emerge from the recession and confidence in the market increases, could 2011 be the year of the IPO?

While last year failed to see the full-scale recovery that many had hoped for, it became clear that the bottom of the trough had been reached and confidence was beginning to return to AIM. In 2010, 62 new companies came to the junior market, 47 of which raised funds. This was an increase from the 18 IPOs in 2009, 13 of which raised money. The combined sum raised in IPOs on AIM last year, just shy of £1 billion, was the highest since 2007, when a considerably larger £6.3 billion was pulled in, according to research from M&A’s sister title, Growth Company Investor.

The new issues market remains erratic. A last-minute flurry of fundraisings on AIM in December ended the year on a high note, with ten new issues raising £106.2 million between them. But in January, only one new company joined the market.

New issues

That’s not due to a lack of demand for funding. For some companies, there’s an urgent need to raise cash in order to make the most of what might be a fleeting opportunity for growth.

Private jet operator Hangar8 regards the economic downturn as an opportunity rather than a threat. An increased focus on austerity has forced many larger corporates to scale back on perceived luxuries, as the company’s CFO, Philip Brady, explains. ‘In the current climate, it doesn’t look great for the likes of Tesco and RBS to have their own jets,’ he says.

That gives Hangar8 the chance to win business from that sort of customer. In November, the company raised £2 million on AIM to acquire smaller operators in a highly fragmented marketplace as well as bringing maintenance services in-house. Brady hopes to use its shares as currency for future acquisitions.

Hangar8’s fundraising was modest compared with last year’s average of £21.2 million. That said, there were 17 companies that came to AIM in 2010 with a market cap of less than £10 million, a big increase on 2009’s figure of just five and an indication that investors were a little more welcoming towards smaller concerns.

Getting noticed
One new entrant slightly above that £10 million size threshold is 3D Diagnostic Imaging, which moved from PLUS to AIM in November and in the process raised £2.7 million. CFO Oliver Cooke says that this figure was roughly equivalent to the amount previously raised over the entire life of the company. ‘There had been a number of funding rounds when the company was private and while on PLUS,’ comments Cooke.

While the obvious benefit of an IPO may be access to a serious amount of money, being listed can also help younger companies gain attention in a global marketplace. Hangar8’s Brady says that one of the reasons for coming to AIM was that the company wanted to raise its profile, as it hadn’t done much marketing historically.

For larger companies breaking into new global markets, the rigours and transparency that being a listed company entails can increase their credibility. Graeme Purdy, CEO of the technology company Ilika, says that the business’ research partnerships with Far Eastern companies such as Toyota and NXP were a driving factor in its AIM listing.

‘There was a secondary requirement to the IPO in that we wanted to improve the transparency of the company and increase our standing globally,’ Purdy comments. ‘When you’re public everything becomes transparent, and particularly for customers in the Far East and Japan that was very important.’

Open doors

3D Diagnostic’s Cooke says that in the international marketplace, particularly in the US where the company has signed a distribution agreement with Patterson Dental, AIM commands more recognition than comparable growth markets in Europe. In 2010, 40 of the 62 new listings on AIM were of companies that operate primarily outside the UK.

Cooke adds that while most of the fundraising the company did in its PLUS days was from existing shareholders, moving to AIM involved the company doing its first ‘traditional roadshow’, presenting itself to institutions and potential investors. ‘It was a different experience for the company, so it wouldn’t be fair to compare the two,’ says Cooke on the AIM fundraising. ‘It was challenging, but you get to know your own story very well.’

Ilika’s Purdy says that in the lead-up to the IPO, the company returned to its broker, Nomura Code, to arrange its roadshow, following an earlier £7 million private fundraising round in 2007.

‘Some people told us that the IPO window was closed,’ says Purdy, ‘but it was a very positive experience, and over the space of two weeks we went around a series of investors in the UK and Europe.’

New issues on AIM 2007-10
New issues 2007 2008 2009 2010
Number of companies 222 70 18 62
Companies that raised funds 184 40 13 47
Total funds raised £6,248m £902m £613m £994m
Average of only those raising money £33.9m £22.6m £47.2m £21.2m
Average market cap £64.9m £51.3m £58.5m £56.8m

Be prepared

Whatever the reasons for a company choosing to float, it’s advisable for directors to do their homework about what to expect in terms of time and cost.

‘We probably weren’t ready for it, and were naïve as to what it entailed,’ says Hangar8’s Brady. ‘You can’t change overnight into a highly regulated plc – the process is quite long, drawn-out and painful. We probably took twice as long and it cost twice as much as we’d thought.’

Adopting the processes and attitudes of a listed business before the float itself can be beneficial, explains 3D Diagnostic’s Cooke. He adds, ‘If you embrace your membership of the market in a positive manner then you can extract the best from it – if you go on in a passive manner and expect the market to do something for you, then you’re probably going to be disappointed.’

Todd Cardy

Todd Cardy

Todd was Editor of between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital.