Does the AIM market need a makeover?
Over the past nine years, the AIM market has shrunk by 41% – down from 1,694 companies at the end of 2007 to 993 now, according to research by UHY Hacker Young
That includes a net loss of 61 companies in 2016, with 44 new companies listing on the market and 105 leaving – the largest number of departures since 2011.
UHY puts some of the shrinkage over the years down to a tightening of the market requirements in 2007 following a London Stock Exchange review, which together with the economic conditions prevailing since then, has resulted in fewer underperforming companies on the market.
Nevertheless, as UHY managing partner Laurence Sacker points out, the fall in the number of companies is not good news if the market wants to attract international companies looking to raise capital.
“The continued shrinkage of AIM is not great, and if this continues at the present rate then the future of the market may be in doubt,” he says.
“There does need to be a lot more of an effort to market AIM to UK and international companies.
“It’s vital that AIM appears welcoming to all companies looking to raise capital – particularly to foreign companies, as after Brexit there may now be a perception that London is not the place to be.”
Sacker also warned that some companies contemplating a listing might be put off by commentators who predict that the proposed merger between the London Stock Exchange and Deutsche Bourse could kill off the junior market.
Interestingly, though, part of the 2016 reduction in AIM company numbers resulted from increased merger and acquisition activity: 34 AIM companies were taken over during the year (compared with 28 in 2015), 13 of them (v eight) in the last quarter alone. Around 70% of the bids in Q4 came from overseas on the back of the decline in the value of sterling.
Sacker says that the increase in takeovers demonstrates the importance of the market as an incubator of valuable companies. However, AIM is currently losing out to private equity and venture capital firms as the go-to place to raise capital, particularly for start-ups.
Cutting costs associated with listing or increasing AIM’s outreach programme, he adds, could increase AIM’s attractiveness and make a big difference in the number of companies choosing to list on the market.