If you want to float your business on AIM, the London Stock Exchange’s market for fast growth companies, you’ll need to be running a business with all the necessary attributes – a strong management team, a sound business model and innovative products and services. A healthy level of sales and profits will also not go amiss for your IPO either.
However, while all of the above are extremely important, they will count for nothing if you don’t recruit the right advisers to guide you through the entire process.
Professional, adept advisers will be able to raise the cash your business needs for growth, introduce you to the right balance of investors (both private and institutional) and, most importantly, put a value on your business that is commensurate with its level of development and potential. If everything falls into place you should be able to sit back and watch your shares go to a premium on the first day of dealings. This will almost undoubtedly enhance your relationship with your new shareholders and the wider City – that most fickle of institutions.
>See also: Benefits of IPO for a company
What’s the difference between nominated advisers (nomads) and brokers?
The importance of the nomad’s role in the flotation should not be underestimated. Its job is to assess a company’s suitability for a place on the market, advise on valuation, oversee the admission procedures and ensure that a company adheres to all the rules and regulations – both before and after float. An experienced and capable adviser is a must.
Pick a name that suits your sector and the size of your business. “There are a variety of nomads out there and I say that perhaps with one eye to the broking aspects as well because they will understand the market and they will have broker reports that they will be able to access and produce and will have an in-depth knowledge of your sector,” said David Davies, partner at Kingsley Napley.
Your broker’s role is, quite simply, that it will raise the cash.
Interestingly, many companies appoint as their nomad the same investment house that acts as their broker. The rationale is that it facilitates a much swifter and more efficient float.
Nevertheless, there are advisers which only fulfil the nomad role – Grant Thornton, for instance. The benefit of this, they argue, is that a pure nomad is working only on behalf of the client, and therefore more independent.
What should I look for in a nomad and in a broker?
Ensure that your nomad knows your sector and has worked with businesses similar to yours. You can find this out by checking which businesses they’ve worked with before – more on that a moment. Building a relationship early will help you to learn whether you’re a good fit.
These are the factors you’d be considering when choosing a broker or a combined nomad and broking house too.
With the broker in particular, you’d want a firm who knows how much money you want to raise. “Some of the brokers will only raise significant sums of money, others will raise hundreds of thousands of pounds, which in the scheme is relatively small. So, you need to pick the right broker who knows the sector and will raise the right amount of money,” said Davies.
“If you’re looking at nomads and brokers, you should look for the nomad first because as there are fewer of them. If you went to a broker and appointed them, you might find that you’re limiting the number of nomads you’d be able to work with.”
Keep sectors in mind
Of course, as well as choosing a broker for their fundraising power and a nomad for its particular skills, you need to bear in mind that some investment houses specialise in certain sectors.
WH Ireland has a focus on mining and resources, Canaccord focuses most on mining, media and life sciences, while Brewin Dolphin has its fair share of technology clients and Durlacher has a penchant for speculative financial services companies.
Most brokers, though, are generalists and can cater for a wide range of sectors, such as Evolution.
Should I go for a nomad and broker at the same firm?
There are pros and cons of having everything under the same roof. Working so closely together means that the nomad and broker can keep each other informed and have easier conversations – plus they’ll likely be working together for different clients, building on their collective experience.
Having them separate could lead to conflict. Nomads would potentially want you to at least engage your broker as well as a third-party broker as co-brokers, with theirs perhaps being the lead broker.
The broking side of it is a much wider pool but for the most part, coming to AIM you find the vast majority of companies will use their nomad as the broker if indeed they’re one of the ones that many of them have broking under the same roof.
“But I think having them separated allows you to I guess be more comfortable that what the broker is doing isn’t being influenced in any way by the nomad’s duty to the Exchange,” said Davies.
Where can I find nomads?
First of all, it’s easier to find a list of nomads than it is to find a list of brokers as there are fewer of them.
To find a complete list of nomads, head over to londonstockexchange.com/adviser. In the top right-hand corner, there’s a button labelled ‘download list’. If you click on it, you’ll download a document with a full list of company names, their sector, location and their adviser.
“I suspect, if you went on to most brokers’ websites, you will see who they’ve raised money for most recently,” added Davies.
Can I switch nomads part-way through the pre-IPO process?
In short: yes, you can. “It’s really quite easy,” said Davies. “Obviously, you need to look at the engagement terms if you’ve actually signed an engagement letter. But the first few meetings I would expect you to be able to have with the nomad. Just kick their tyres, as it were, and make sure that the fit is right without actually being fully engaged.”
If you as a company wanted to raise more money, there’ll often be other brokers sniffing around trying to say, ‘Well if you ever fall out with your broker…’
Note that you do have to have a nomad otherwise you get suspended. It’s worth mentioning here that your nomad could break ties too. If nomads lose trust in their clients – they feel that the clients are doing things without keeping them informed, for example – then they may say, ‘Actually we’re withdrawing from being your nomad’. Then you get an automatic suspension from the markets until you find someone else.
How much does pre-IPO cost?
It’s very difficult to pin down pre-IPO costs. It very much depends on how much you’re looking to raise and how attractive you are to the broker.
Brokers will also charge a percentage of the fees on the amount of money they raise, and they will probably want warrants as well, which will be effectively like options over new shares attached to them. It will range in the single figures depending on how attractive you are and what the market’s doing – probably somewhere between 3-8 per cent.
If it’s a smaller value when you’re going to raise, they’ll probably want a higher percentage. It can really vary.
The annual retainer for a nomad will be in this £30-50,000 range, depending on various factors.
All in all, coming into market will cost in the six-figure region, and possibly more if you’re looking to raise a substantial sum.
Thank you to David Davies, partner at Kingsley Napley, for his help with this article update.
See also: Pre-IPO finance – The route to fundraising success?