AIM companies emerge from recession twice as cash-rich as FTSE-100 companies

  • Defies criticism that AIM can’t survive a tough economy
  • Secondary fund raising more successful as AIM matures

Our recent research has revealed that AIM companies have come out of the recession twice as cash-rich as FTSE-100 companies.

The liquidity ratio of AIM companies emerged from the recession at 2.03, compared to just 0.97 for FTSE-100 companies. This means that AIM companies have twice as much cash than they need to meet their debts as at their last balance sheet date. (See graph below)

Comments Laurence Sacker, corporate finance partner in our London office: “It is extremely encouraging to see that AIM companies are emerging from the deepest recession for a generation with such a healthy cash position.”

“This challenges criticism from AIM detractors over the ability of small and medium sized companies to operate in difficult economic conditions. It shows that the AIM market is nowhere near as fragile as some have feared.”

“On average, AIM companies went into the recession with very strong cash balances. Their cash burn was lower than expected and they had the investor support to raise new capital when they needed it.”

“There was concern that the credit crunch would drive more AIM companies to the wall than it actually did. The high level of liquidity of AIM companies will stand them in good stead, especially as bank lending is still very restricted.”

As AIM matures further it will attract even more institutional investors and this will increase the ability of AIM-listed companies to raise fundsin secondary issues, helping them maintain strong liquidity levels.

Comments Laurence: “Even when the market was in the doldrums in 2009, AIM companies were successfully raising billions in secondary issues. This means they’ll not only be able to meet short term debts, but it will also allow them to invest for the long term, laying the ground for future growth.”

According to statistics from the London Stock Exchange, the total of secondary funds raised by AIM companies amounted to £2.4 billion in 2009 despite the AIM index reaching its trough that year.

The re-shuffle that AIM went through over the last couple of years has contributed to strengthening the market’s attraction to investors.

Comments Laurence: “AIM underwent a natural process of consolidation whereby some of the weaker companies de-listed. As a result, the AIM market is much stronger now and this should continue to draw in institutional investors whilst attracting new listings.”

Liquidity ratio of AIM-100 v FTSE-100

2011-01-10-aim-graph