AIM shrinks as NOMADs continue to drop higher-risk clients

Publications that covered this story include Reuters, the New York Times online and the Daily Mail online on 24 July, Interactive Investor on 27 July and The Times on 19 August.
  • 14 more AIM companies unable to find NOMADs

The number of companies leaving the Alternative Investment Market (AIM) due to the resignation of their Nominated Advisers (NOMADs) has jumped in the last five years.

14 out of 82 companies that left AIM in the last year* did so because their NOMAD resigned, compared to only 3 out of 101 companies that delisted in 2011/12 (see chart below).

NOMADs – brokers or investment banks – are responsible for advising and guiding companies on both their admission to AIM and their continuing responsibilities once on the market. Under AIM rules, companies are forced to leave the market if their NOMAD resigns and they are unable to secure a replacement.

The London Stock Exchange can levy significant fines against NOMADs if they or the companies they advise break any of AIM’s rules. This places significant responsibility on NOMADs to regulate the activities of businesses they advise, some of which may be relatively small or young businesses, or based in emerging markets.

In December 2016, an unnamed NOMAD was fined £75,000 for failing to ensure their AIM listed client was compliant. This risk, combined with the limited fees available to NOMADs, has reduced the number of NOMADs available to act for AIM companies.

Significant shareholder value is destroyed when an AIM company is forced to leave the market due to the resignation of their NOMAD, as its shares usually slump in value when they are delisted. Investor sentiment towards AIM as a whole is impacted by higher numbers of delistings.

Laurence Sacker, Managing Partner in our London office, comments: “AIM is facing a real crunch among NOMADs, with many brokers and investment banks reducing their exposure to riskier parts of the junior market.”

“This is particularly affecting smaller or more complex AIM-listed businesses, or those based in emerging economies, as NOMADs are deciding that they are unable to take the responsibility the stock exchange requires.”

“The London Stock Exchange is rather caught between the devil and the deep blue sea, wanting to keep pushing the quality of the market up, while avoiding driving new companies away. After all, AIM was designed as a market for higher-risk companies.”

“Shareholder value is destroyed when NOMADs resign, and in the worst-case scenario, it can knock investor confidence in entire segments of the market. That hits AIM’s ability to act as a platform for smaller company fundraising.”

The number of companies delisting from AIM has dropped by 18% in the last year, from 100 in 2015/16, to 82 in 2016/17.

The number of companies joining AIM has also dropped by 20% in the same period, from 45 to 36, while money raised in IPOs fell by 34% from £1 billion to £668 million.

Recent AIM listings include haulage company Eddie Stobart Logistics in April, which raised £130 million, which was the biggest IPO of the year, and online mattress retailer Eve Sleep in May which raised £35 million.

The number of companies delisting from aim due to NOMAD resignation has risen

* Year ended June 30 2017