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Private equity (PE) firms, as bidders in 10 out of the 18 AIM takeovers, have been a big driving force in the AIM M&A deals this year. In 2018/19, only 6 out of 22 AIM M&A deals were PE backed. There were only 14 takeovers of companies on the Main Market in 2019/20.
PE funds have become more comfortable in acquiring AIM companies over the last few years, as the market has improved its governance procedures since the last financial crisis.
Daniel Hutson, Partner at our London office said: “PE firms have excess cash to invest and are on the hunt for value wherever they can find it. Clearly they are seeing a lot of value in AIM companies that still remain off limits to many institutional investors.
Whilst AIM now has a number of heavyweights like ASOS, Fevertree, Chi-Med and Boohoo that would make it into the FTSE100 or FTSE250 it also has a long tail of companies that don’t get the analyst coverage they deserve.
Private equity companies have been willing to put their analyst teams to work to identify those AIM companies that they think traditional investors are undervaluing.
Some commentators have argued that MiFID II, which changed the way equity analysts are paid by institutions, has led to a reduction in research on smaller companies such as those on AIM. This lack of analyst coverage has led to a larger number being undervalued – creating buying opportunities for PE funds.”
With the like of ASOS and Fevertree having overhauled the reputation of AIM-listed companies for delivering growth, AIM is likely to continue to be a hunting ground both for PE funds and corporate acquirers.
Daniel Hutson adds: “Overall the AIM market yields 1.2%, which is low compared the mature companies in the FTSE100 but shows that the time when AIM was a synonym for loss making and cash guzzling is long gone.
AIM companies are likely to continue to be highly attractive to buyers going into 2021, as more and more buyers look for high-growth targets, particularly within the tech and pharma sectors that have outperformed others during COVID-19. So far this year, 42% all AIM deals have been within the tech or pharma industries.
Brexit will take some heat out of the market towards the end of the year as we wait to see what the new post-Brexit world looks like. However, the overall popularity of AIM companies is likely to continue as we go into 2021 and beyond.”
Notable transactions so far this year include:
- Managed IT and cloud hosted services group to the legal, recruitment and financial services industries Nasstar PLC was takeover by Divitias Bidco, a Lincoln-headquartered IT services provider
- Harwood Wealth Management PLC acquired by US private equity giant The Carlyle Group
- IndigoVision, an IP video surveillance systems provider, acquired by Motorola Solutions
- Leading cancer and fibrosis drug discovery and development biotech Redx Pharma PLC taken over by US-based investment firm Redmile Group LLC
* Year end 30 September 2020