Cost of listing on AIM continues to rise despite sharp fall in number of IPOs

This story was covered in the Independent, 8th March 2010.

  • Fears over regulatory backlash continue to drive up costs

The cost of listing on the AIM stock market continued to increase over the last year* to reach an average of 7.24% of all funds raised, up from 7% in the previous 12 months, reveals research from UHY Hacker Young and City law firm Trowers & Hamlins. (Full results below)

The increase in professional costs is despite a 66% fall in the number of AIM IPOs, down from 38 in 2008 to 13 in 2009.

UHY Hacker Young and Trowers & Hamlins explain that the highly charged regulatory environment means that professional advisers, such as Nomads, have had to subject AIM candidates to ever greater levels of due diligence which is pushing up the cost of listing on AIM.

Laurence Sacker, Partner at UHY Hacker Young, explains: “Fears over regulatory retribution if an AIM IPO goes wrong is a bigger driver of the costs of listing on AIM than the desire amongst advisers to win AIM work by competing on price.”

“Advisers are becoming ever more meticulous in their work and this has made it harder to keep costs down.”

“There is a cost to businesses when a regulator like the FSA publicly states that we should all be “very frightened” of it. Whilst the London Stock Exchange is responsible for much of the AIM related work it is the politicians and the FSA who have set the mood.”

“After all the opprobrium heaped upon the financial sector over the past two years, Nomads expect every aspect of their due diligence work to be rigorously scrutinized. With the sort of fines that are being issued by the LSE, there is simply no margin for error.”

Charles Wilson, Partner at Trowers & Hamlins, comments: “Protecting investors without adding overwhelming compliance costs to companies has been crucial to the success of AIM.”

“However, a greater emphasis on regulation over the past 24 months has driven up these costs to the point where it risks making listing on AIM less attractive to some companies.”

“In order for AIM to remain competitive on an international stage, against the likes of NASDAQ and EuroNext, it is vital for it to once again achieve the right balance between regulation and cost.”

Charles Wilson says that if the regulatory environment creates bigger risks for Nomads, then Nomads should be expected to charge higher fees to compensate for that risk.

Adds Charles Wilson: “In addition, Nomads are having to work far harder to raise money for IPOs from investors. These costs inevitably filter through to the cost of listing.”

“Although the sample size of IPOs is much smaller this year we shouldn’t just shrug off this increase in costs which, if it continues unchecked, may deter some companies from listing.”

Average costs of AIM IPO as a percentage of the funds raised – includes fees to London Stock Exchange and to professional advisers

cost-of-aim-listing

* Year to January 1st 2010.