Although a lot less cumbersome than that of joining the Main Market, the process of floating on AIM can still be considered fairly arduous, with plenty of factors for companies to consider before beginning the process. This article discusses the reasons for and against floating on AIM, the required appointments and documentation, as well as looking at the potential costs and time involved in listing on the AIM Market.
Reasons for floating on AIM?
There are a large number of reasons why companies might decide to float on AIM. These include:
- Access to investment capital to support further growth
- The opportunity to enhance the image and credibility of the company on an international scale
- A regulatory system geared towards the needs of smaller, growing businesses
- Quotation on one of the most liquid capital markets for the trading of shares in smaller businesses
- Support from experienced advisers who are able to understand the needs of ambitious companies
- A means to undertake further fundraising, thus enabling continued growth of the company
- A way in which to take advantage of opportunities to acquire other businesses
- A strategic exit route for existing investors
Reasons for not floating on AIM?
As well as the time and cost involved (discussed in more detail later on), joining the AIM Market increases the obligations of the company, whilst also putting the value of the company at risk of adverse fluctuations, often due to factors outside of the company’s control.
What is the first step to joining AIM?
The process of joining AIM begins by appointing a Nominated Adviser (Nomad). Generally an investment bank or corporate finance or accountancy firm, Nomads are there to guide the company through the listing process, as well as their ongoing responsibilities once admitted. By doing so, they act effectively as a regulator, making sure to maintain standards and uphold the reputation of the junior market.
In terms of the responsibilities of Nomads during the admission process, these include helping to coordinate and oversee the preparation of the AIM admission document, as well as due diligence to ensure that the directors, goals and operations of the company are suitable for life on the market.
Once admitted, Nomads act as the primary regulator throughout a company’s time on AIM by keeping abreast of developments at the company, ensuring that it continues to understand its obligations, and providing advice on business strategies and general market conditions.
As such, due to the large level of input and influence that Nomads have on a company, it is highly important that companies choose an adviser with relevant sector experience and that is able to understand the goals of the company and the challenges that it will face in achieving these.
What other advisers and partners are required?
As well as a Nominated Adviser, companies wishing to list on AIM also need to appoint a Nominated Broker. The responsibilities of the Broker include the following:
- Supporting the financing needs of the company by assessing the level of investor interest at the time of admission and in any subsequent rounds of fundraising
- Acting as a conduit for the company’s relations with its shareholders
- Providing ongoing advice on market-related and trading-related matters
- Advising on the pricing of shares and other investment opportunities
On top of the Broker, a company will also need a Reporting Accountant. The Reporting Accountant will be responsible for conducting an independent review of the company’s financial records, history and procedures, as well as reviewing the company’s forecasts in order to confirm the accuracy of financial information included in the AIM admission document.
Not only this, Lawyers will also need to be appointed who will undertake the necessary legal due diligence, such as advising on any necessary changes to the memorandum and articles of association, directors’ service contracts, share option schemes and other corporate documentation, as well as drafting the statutory part of the admission document.
Finally, financial public relations professionals will also need to be appointed to provide publicity for the flotation.
What documentation is required for listing?
Information on the necessary AIM admission documentation can be found under AIM Rule 3, 4 and 5. Alongside this, other key reports and documents include the legal due diligence report, and the working capital report.
Certain other marketing documents are also necessary, such as investor presentations and research reports, which are prepared in advance of any investor roadshow where the company’s management and Nominated Broker meet with potential investors.
What are the costs involved in floating on AIM?
As you might expect, the cost involved varies considerably but should reportedly be around six to seven per cent of proceeds raised.
The costs to consider include: advisory and due diligence costs via the chosen Nomad, Reporting Accountants, Lawyers and Financial PR Firm; the Exchange fees, which are incremental based on market value; as well as the commission accrued by the appointed Broker.
Of course, not all flotations are successful, in which case, the costs involved will be a lot lower due to a large proportion of fees being based on success. Nevertheless, a company should still ensure enough budget has been put aside to pay associated costs in the event of an unsuccessful flotation.
How long does it take to float on AIM?
With the large number of different parties and documentation involved, joining the AIM Market can take up to a year of preparation – sometimes even more. However, for those planning on floating as fast as possible, 14 weeks is seen as the minimum amount of time required.
On the balance of things, is it worth floating on AIM?
Recently, we have seen a lot more companies delisted from the AIM Market than we have seen listed, resulting in the current number of companies at the time of writing falling just below 900. Based on this, it would appear that the costs involved, along with the additional reporting requirements, just aren’t worth it for a lot of companies. And, quite honestly, for those towards the bottom of the market facing the frustration of seeing their share price jump around under the influence of Market Makers – it just isn’t.
From an investor perspective, perhaps this isn’t such a bad thing if in the long run it leads to a better calibre of companies listed on the AIM Market. However, from a business perspective, does this mean AIM is failing in its efforts at providing a place for smaller companies to access capital and investment? Quite possibly, but we also know that AIM has been instrumental in facilitating the growth of hundreds of ambitious companies.
As with any of this, there isn’t an easy answer, but the answer resides primarily with the role of the Nominated Adviser and their attempts at helping companies understand whether or not admission is advisable.