UK AIM dominated European junior markets in 2021 but is its lead unassailable?

Whilst that debate rages it does at least look like AIM (the London Stock Exchange’s junior market) is outperforming its European rivals in terms of fund raisings for growth companies.

Just how well is AIM performing relative to other European markets and are there any areas where AIM’s performance as a home for growth companies could improve?

Data from the London Stock Exchange shows that UK’s AIM market was responsible for 53% of all the funds raised on European growth stock markets last year.

£9.5bn was raised on the London based exchange through both IPOs and secondary fundraisings compared to £18bn on Europe growth markets as a whole. 

AIM’s closest competitor was First North Stockholm, which saw £5.3bn raised in 2021, just 56% of the UK’s total. However, First North Stockholm did see a higher total number of actual IPOs than AIM last year, 75 IPOs vs 66 on AIM. The First North Stockholm Exchange has been particularly successful in attracting smaller technology IPOs over the last 12 months.

However, Stockholm is one of very few credible challengers to AIM’s dominance. By comparison, the Paris Alternext market raised just 5% of the European total with £827m, and the Borsa Italiana raised only 4% with £740m. 

The last decade, AIM has solidified its reputation as the best junior stock market to float on in Europe. This is partly due to a programme of improved regulations, with companies on the index having to comply with a corporate governance code aimed at providing greater investor protection.

AIM’s largest fundraisers last year were: 

  • £350m raised by scientific land trust Life Sciences REIT
  • £306m raised by vegan cosmetics brand Revolution Beauty Group
  • £300m raised by identity data provider GB Group

AIM’s improved reputation, which has attracted more institutional investors to the market, has also helped increase its liquidity, with the average value of daily trading in AIM shares surging 47% to over £480,000 in 2020/21, from around £329,000 the year before.

As liquidity is key metric from both investors and the companies listing, investment-grade companies are likely to be more encouraged to list on a market with higher liquidity. Adding more of these companies has helped create a virtuous circle - improving AIM’s reputation as a highly credible index for institutional investors.

However, within certain sectors such as technology companies, AIM still faces very strong competition from other bourses. This is an area the LSE and HM Treasury will want to keep under review. Critics have highlighted that just a small proportion of companies on AIM are from the technology sector. 

The London Stock Exchange in general has tried to become more attractive to technology companies. The LSE has seen progress to some extent, with tech IPOs in the UK last year raising a total of £6.6bn – more than double 2020’s figure. 

Perhaps UK based fund managers have been too willing to accept bid offers for higher growth tech companies. Those takeovers have stripped the LSE of many of its tech growth companies. Fund managers have made a short-term gain from accepting a takeover premium for those UK tech stocks but potentially at the expense of better long-term returns.

But is the AIM market really at such a big disadvantage. It is still packed with tech stars and the recent downturn in the value of tech shares globally has raised the question of whether a stock market really should be too overly reliant on one sector, albeit a very important sector.

After the recent correction investors are approaching the tech sector with a healthier attitude. They no longer expect untroubled exponential growth from the tech sector. The rotation from growth stocks, into value stocks such as mining, oil & gas plays shows the value of having a stock market that is properly diversified.

AIM already has core strengths in mining and oil & gas. These sectors have performed relatively well during the recent market downturn. If concerns over inflation remain in place for the next six months then we are very likely to see a rush in IPOs from those sectors.

AIM’s reputation for IPOs and secondary fundraising within those sectors, should protect from the turbulence of the first half of this year and help sustain London’s reputation as the centre for Europe’s equity capital markets.

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