AIM’s struggles continue with delistings up 18% in a year

This publication was covered in Express on 3 April 2016 and Daily Mail, Daily Express, growth business and i on 4 April 2016.
  • Market sheds 105 companies in a year
  • IPOs at lowest level since recession
  • Mining/oil & gas companies make up over a quarter of delistings

The struggles of the Alternative Investment Market (AIM) have continued in the past year* with 18% more companies quitting the market and a 55% reduction in IPOs compared to last year.

According to our research,  a total of 105 companies delisted from AIM and only 35 companies floated in the past year, giving a net decrease of 70 companies from the exchange. This is substantially worse than last year, which saw a net decrease of 12 companies, and the prior year, which saw a net loss of just three.

The main reason for companies leaving the junior market was financial stress and insolvency (27 companies) – the first time this has been the case since 2009/10, the worst year for delistings in AIM’s history.

Our research shows that continued low commodity prices are having a large impact on AIM, with its traditional heavy reliance on small oil and gas explorers and emerging markets mining companies.

A further 20 companies cited resignation by their Nominated Advisor (NOMAD) for their departure. AIM listed companies need a NOMAD to represent them – these NOMADs may resign their position of they feel the company has become a reputational risk to them. If a company is unable to secure another NOMAD, it is an indicator that the company may be experiencing significant financial distress or governance problems.

Chinese companies have been particularly affected by the risk aversion of NOMADs in the last year, with uncertainty over corporate governance leading many NOMADs to drop Chinese AIM companies.

In the past year AIM also suffered its lowest level of IPO activity since 2009/10, with only 35 companies floating – a decrease of 55% from last year. The amount of funds raised for IPOs also fell to £624 million – a decrease of 53% from 2014/15.

This total was raised substantially by the late March float of student accommodation developer Watkin Jones, which raised £131.3 million, the largest IPO on the junior market in more than two years.

Laurence Sacker, partner, says: “The resolutely low oil price, the continuing slack Chinese demand for commodities and the lower-risk approach taken by NOMADs have combined to make the past year a very difficult one indeed for AIM.”

“There doesn’t appear to be any immediate respite on the horizon for any of those issues, which suggests that the coming year may not deliver the upturn AIM companies are hoping for.”

“China has long been a good source of companies for AIM, but with NOMADs now gun-shy over representing Chinese clients, Chinese companies may now choose to look elsewhere.”

“Without the Watkin Jones float, money raised in AIM IPOs in the past year would have been the lowest in more than a decade, showing just how little demand there is for high-growth companies at present.”

“This is part of a broader slowdown, with 21 IPOs in the US being cancelled in the first quarter.”

Our research shows that 28% of companies that delisted from AIM last year were mining or oil & gas companies. Dwindling metal and oil prices – caused by the Chinese slow-down and a major oil supply glut – have plagued resources companies over the last years and have created a tough environment for smaller resource companies to survive.

Sharp drop in number of companies trading on AIM

 

AIM graph

AIM IPOs hit six-year low

Graph

* Year ending March 31 2016