Without borders

More international companies than ever are seeking to join AIM, but often do not consider important issues early enough in the flotation process.

More international companies than ever are seeking to join AIM, but often do not consider important issues early enough in the flotation process.

International companies seeking admission to AIM need to address key issues early in the flotation process to avoid unnecessary delays.

AIM continues to attract increasing numbers of overseas entrants despite concerns over the quality of certain aspiring companies. In 2006, 482 companies joined AIM, of which 120 – 25.8% – were international.

At the end of 2006, 306 international companies were on AIM – 19% of the total market – excluding UK companies with significant overseas interests held through subsidiaries.

Of the international entrants in 2006 more than one-third came from China or was China related, with 30% from North America and 11% from India. The growth in Indian-based companies was underpinned by several large fund-raisings targeting investments in the Indian property market.

AIM is now arguably the only effective international market for small fast growing companies. This position has been supported by the strength of London’s capital raising and research capabilities and the burden of Sarbanes-Oxley compliance making the US less attractive for public companies. However, Euronext is actively marketing in Europe, North America and SE Asia in an attempt to create an alternative to AIM for overseas companies.

The growth in overseas entrants to AIM and continuing interest from aspiring companies around the world highlights several important commercial, financial, taxation and legal issues that need to be dealt with before admission. “AIM is hugely successful and it has been a springboard for growth and corporate development for many international companies,” said Robin Stevens, head of corporate finance at MRI Moores Rowland LLP. “However, if potential overseas entrants do not consider key issues early enough in the flotation process this often leads to delays, additional costs and less than optimal ‘eleventh hour’ decisions.”

MRI Moores Rowland has identified the following issues that need to be resolved well in advance of a proposed admission:

• Is the current corporate structure suitable? In many cases a new parent company is required to regularise and align shareholder and economic interests before admission

• Are adequate financial controls and management information systems in place? These may need to be enhanced to meet public company reporting and corporate governance requirements, including the appointment of an audit committee and a financial director

• Does historical financial information need to be restated? It may be inconsistently prepared nor comply with International Financial Reporting Standards. This may have a significant effect on previously reported profits and shareholders’ funds

• Does historical financial information need to be audited for the first time? This may delay or in exceptional cases derail an admission

• Are there any unresolved legal issues? Early stage legal due diligence should be undertaken to highlight potential problems with issues such as the protection and use of IP rights, foreign ownership of local businesses, the substance of customer and supply contracts and the existence of litigation or potential claims

• Are there any tax compliance issues? Has all historical income been properly reported and taxed in the local jurisdiction?

• Onshore or offshore? Normally a UK parent company provides benefits when marketing a new issue to UK investors. But when dealing with the transfer of shares through CREST, if there will be significant non-UK resident shareholders post admission, an offshore-controlled parent can be beneficial

• How will investors view an overseas-based company? An overseas-based company is outside the scope of the Takeover Code, which may be a negative issue for UK institutions. In these cases directors are often advised to submit voluntarily to the Takeover Code

• Are employee reward structures in place? Share incentive arrangements for an overseas group joining AIM can be complicated by the tax regime in the country/countries where the employees are based.

• Is the board structure appropriate? The board will need two or more independent non-executive directors who ideally would have between them knowledge of the business sector, experience in the company concerned, local language skills where relevant and previous exposure to UK public markets

“This is not a comprehensive list of the issues to be addressed in connection with overseas market entrants as these vary with the business concerned,” Stevens said. “However, in all cases there is an overriding need to plan the IPO process at an early stage to ensure these and other points can be identified and dealt with without delaying the transaction.”

For more information on how MRI Moores Rowland can help with an admission to AIM or other public markets in the UK or overseas, contact:

Robin Stevens – partner, corporate finance
T: 020 7153 2365
E: stevensr@mrimr.com

StephenBullock – partner, corporate finance
T: 020 7153 2364
E: bullocks@mrimr.com

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.