AIM reaches turning point in return to stability

Titles that covered this story included Bloomberg News, 29 December 2010, the Daily Telegraph, 30 December 2010, the Independent, 3 January 2011 and the Financial Times, 4 & 6 January 2011.

  • New listings now outweigh departures by struggling companies
  • Upturn in M&A activity

New research from UHY Hacker Young and Trowers & Hamlins LLP, the City law firm, suggests that AIM is reaching a turning point in its return to normality with an influx of new issues and a sharp fall in the number of delistings. During 2010 the number of companies leaving AIM fell by 44% from 280 in 2009 to 157.

The final quarter of 2010 also saw the number of companies joining the market (23) surpass the number of companies leaving due to financial or other problems (13) for the first time since the start of the financial crisis.

Charles Wilson, partner at Trowers & Hamlins, comments: “AIM has taken a real beating over the last two years, but has weathered the storm nicely and could well emerge stronger than it was before the financial crisis.”

Laurence Sacker, partner in our London office, adds: “AIM is certainly heading in the right direction. Delistings appear to be stabilising, while the upturn in IPO and new issue activity is encouraging. However, the market’s return to optimism is tempered by a lot of caution – conditions are not yet what you would call buoyant.”

During 2010, the number of new listings more than trebled, up from 18 in 2009 to 65 in 2010. The total money raised by these new listings rose more slowly, up from £610 million in 2009, to £1.0 billion in 2010*.

Laurence continued: “There has been an influx of new listings, but the amount of new money raised has not quite kept pace. At the same time, further issue activity has been strong – reaching £4.5 billion by the end of November, which suggests that investors are backing only a few new businesses, preferring to stick with those they know well. ”

“In terms of UK companies in particular, it is also likely that the recent credit drought means companies that have grown sufficiently in the last two years to now be in a position to contemplate an IPO are a relative rarity.”

In 2009, 212 companies cited financial problems, the failure of their business strategy, the cost of maintaining a listing or other difficulties as the reason for their departure. In 2010, the number of companies leaving AIM because they could not maintain their listing, or did not see the value of doing so, fell to 72. (See full results below)

In the final quarter of 2010, the number of companies joining AIM outweighed the number leaving due to financial or other problems for the first time since the start of the financial crisis. The number of companies delisting from AIM fell from 45 in Q3 2010 to 31** in Q4, while new listings jumped from 16 to 23. The majority of companies departing during Q4 left as a result of M&A activity or promotion to the Main Market.

Charles Wilson, partner at Trowers & Hamlins, explains the impact this is having on the make-up of the AIM market: “Losing companies due to M&A activity or because they have graduated to other markets is a sign that a market is healthy. But the financial crisis meant that AIM shed a lot of companies which were forced to delist due to financial stress, or which for various reasons were not suited to AIM. These weaker companies are now starting to be replaced by companies that have continued to grow through the recession and are prepared for the opportunities and challenges of being on a public market.”

M&A activity behind 50% of delistings, 44% in 2010.

In another sign of AIM’s return to normality, M&A activity was behind half (52%) of all AIM delistings in Q4 2010 (16), and behind 44% of delistings during the year as a whole (69). During 2009, just 20% of delistings (56 in total) were due to M&A activity.

Laurence comments: “M&A activity on AIM is just starting to pick up. While in some cases this may mean that weaker companies are being bought out rather than quitting the market, the fact that would-be buyers of AIM firms are increasingly able to finance deals is none the less a positive sign.”

While the volume of M&A deals on AIM has risen slightly, there have been cases of companies being sold at a discounted share price.

Charles Wilson comments: “The upturn in M&A activity suggests that some companies were looking for economies of scale and hoping to expand by taking advantage of relatively depressed valuations on AIM. However the market’s rally in the last quarter may mean that the window for that type of deal has closed.”

Reasons for de-listing Q3 2010 Q4 2010
Number % of total Number % of total
AIM too expensive / too much of a burden 7 16% 2 6%
Change of listing to other exchange 5 11% 2 6%
Failure of strategy 5 11% 2 6%
Financial stress & insolvency 8 18% 8 26%
M&A 20 44% 16 52%
No NOMAD 0 0% 1 3%
Other 0 0% 0 0%
Total 45 100% 31 100%
Reasons for de-listing 2009 2010
Number % of total Number % of total
AIM too expensive / too much of a burden 50 18% 16 10%
Change of listing to other exchange 12 4% 16 10%
Failure of strategy 24 9% 18 11%
Financial stress & insolvency 95 34% 33 21%
M&A 56 20% 69 44%
No NOMAD 39 14% 3 2%
Other 4 1% 2 1%
Total 280 100% 157 100%

* ‘New Issue’ figures exclude reverse takeovers and readmissions, and include placings and introductions, including introductions from other markets. Full year figures are correct to December 24, and include estimated money raised figures for Frontier IP Group and Peer TV, due to join AIM by December

**Delistings figures are correct to 24 December