Costs of listing on AIM continues to rise defying fall in IPOs

2nd May, 2008

The costs of listing on AIM have continued to increase over the last year to reach an average of 6.7% of all funds raised, up from 6.2% in the previous 12 months, reveals research from our experts and City law firm Trowers & Hamlins. The increase in professional costs is despite a 39% fall in the number of AIM IPOs from 462 in 2006 to 284 in 2007. (Full results below)

Laurence Sacker, Corporate Finance Partner at our London office comments: “Clearly the fall in IPO activity over the last year hasn’t fed through into lower professional fees.”

“Professional advisers are increasing the level of due diligence required for AIM listings and at the moment companies accept that they are going to have to pay more for that.”

“The last year has also really proved the point that AIM can work very well for raising secondary finance. Last year ?9.6 billion was raised via secondary fundraisings on AIM compared to the ?6.6 billion raised by new AIM listings. That is a significant achievement and a real selling point for AIM – no other junior stock market anywhere in the world offers such strong secondary fundraising ability.”

Although our experts say that the growth in AIM costs has moderated they warn that for a company that does not control its IPO properly the costs can spiral. Laurence Sacker points out that for companies looking to raise under ?10m the costs of listing on AIM are 16.4% of all funds raised.

More rigorous due diligence making it harder to cut costs

Charles Wilson of Trowers & Hamlins points out that the London Stock Exchange (LSE) seems more likely to take enforcement action against errant Nominated Advisers and AIM companies. In October 2007 it fined a Nomad for the first time - ?250,000 for failing to exercise due skill and care. Since then it has fined a further Nomad and ten AIM listed companies for failing to comply with the AIM rules.

Charles Wilson says: “For many years the vast majority of Nomads have consistently followed the best market practice guidelines, which are now codified in the AIM Rules for Nominated Advisers. However, with the LSE clamping down on non-compliance and fund managers urging advisers to take a more rigorous approach many Nomads are becoming ever more meticulous in their work. This has made it harder to keep costs down.”

“AIM’s clear and straight-forward approach to regulation has seen it steal a march on other exchanges. However, with competition from copycat markets, AIM needs to be wary of introducing more regulation for companies and their advisers as this may push up the costs of listing further.”

“A greater regulatory burden which would probably lead to an increase in costs could result in fewer smaller companies looking to list on AIM – the area of the market AIM originally set out to serve.”

UK companies spending more on listing than international companies

Surprisingly, our research also reveals that the costs of listing on AIM are lower for international companies than for companies based in the UK. The average costs of listing international companies was 6.2% of the capital raised, compared to 8.7% for UK companies.

Laurence Sacker says: “Whether a company is based in the UK or overseas is not the sole driver of its costs of listing on AIM. The complexity of the company and its choice of professional advisers will also make an impact.”

“A lot of the bigger companies coming to AIM are now from overseas and larger companies tend to spend a far lower proportion of the money they raise on costs than smaller companies.”

Laurence Sacker

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