The City sees 32% drop in fee income for AIM IPO work over past 12 months
7th July, 2008
The City has seen fees from new companies listing on AIM fall by 32% over the last year, reveals research from our experts.
According to the research approximately £333 million was earned in professional fees from AIM IPO work over the past year (to May 31 2008), down from £487 million the previous year.
There was a 33% fall in the number of new companies listing on AIM over the same period to 175 in the last year from 260 in the previous year.
Laurence Sacker, Partner at our London office, comments: “The larger sums of money being raised on AIM means that it has become more dependent on institutional investors but the current economic uncertainty means that institutions are far less keen to increase their exposure to equities.”
“Smaller and mid cap companies, which tend to have a much higher volatility of earnings, are normally the first to suffer from a buyers’ strike.”
“In fact the AIM market has not done too badly, only falling about 19% over the last year compared to 16% for the FTSE-100. That is a far less savage a fall compared to previous corrections on the AIM market. Perhaps that should give us a bit more confidence that the AIM IPO market will recover soon.”
Our research also points out that the abolition of taper relief has also made the junior market less attractive to some private investors, raising the tax rate they pay on profits from selling AIM shares by 80%. This may have encouraged high-risk investors to look for opportunities in emerging markets instead.
Laurence Sacker says: “Although investors are wary of participating in the IPOs of too many smaller UK companies AIM should be better insulated now. It has succeeded in building up such a strong brand for listing international companies who should be less impacted by the credit crunch.”
According to DigitalLook.com six of the most recent nine AIM IPOs were companies operating in India or former Soviet countries.
Adds Laurence Sacker: “The ease with which AIM companies are able to raise further financing on AIM will continue to be a major selling point for international companies coming to London. As more AIM companies reach maturity they are going to become increasingly active in the M&A field which will also go some way towards protecting professional advisers’ fee income.”
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