AIM shrinks as junior market intensifies focus on corporate governance

Publications that covered this story include the Financial Times, The Times, the Independent and City AM, 6 July 2015.
  • Market loses a net 29 companies in past year
  • NOMAD resignations cause 13 delistings in 2015 alone

The AIM market has suffered its biggest net loss of companies in two years with 29 more companies leaving the market in the last 12 months* than joined it, according to our research. The departures included 13 companies that delisted after their Nominated Adviser (NOMAD) stood down.

The junior market suffered a net loss of 17 companies in Q1 2015, and a net loss of 15 in Q2 2015, the worst quarters since Q1 2012 when the market shrank by 27. This wave of departures reverses a period of growth for the market – in the preceding 12 months the market grew by a net of four companies in total.

This shrinkage in the junior market is driven in large part by a more intensive focus on corporate governance as AIM matures, prompting more Nominated Advisers (NOMADs) to re-examine their relationships with some of their AIM clients. NOMADs undertake due diligence on an AIM-listed company prior to its IPO, and act as its primary regulator once it is trading on the market.

AIM companies are forced to leave the market if they cease to work with a NOMAD, and no replacement can be found within a month. 13 companies had to leave for this reason in the last six months alone.

In recent months, NOMADs have paid increasing attention to their clients’ corporate governance arrangements, as the market continues to mature. AIM recently celebrated its twentieth anniversary.

Several of the companies that left AIM in the past year were advised by NOMAD firm Daniel Stewart, which gave up its NOMAD license in December 2014. This left its 21 AIM listed clients seeking replacement NOMADs.

Several of these companies, including Pressfit holdings, a Chinese manufacturing company, and Enova systems, an electrical vehicle company, were unable to find a new NOMAD, resulting in the cancellation of their AIM listing.

Other companies that left the market due to NOMAD resignation during the last year include:

  • Rangers Football Club, whose directors admitted that corporate governance issues had made it the most complained-about company on the junior market over the previous year
  • Naibu Global International, the Chinese sportswear manufacturer, whose NOMAD resigned after being unable to contact the company’s executive directors for an extended period

Laurence Sacker, partner in our London office, comments: “It’s natural that any growth market will step up its focus on corporate governance as it matures, and investors’ expectations rise accordingly.”

“AIM is seeing a new influx of capital as appetite for growth companies increases, and also a wave of new companies. With more demand for their services, NOMADs are increasingly opting to focus on companies who are willing to go the extra mile in terms of putting in place strong corporate governance controls.”

“That is good news for investors and for AIM.”

M&A activity increases by 19% in a year

There is also positive news for the junior market: over the past year M&A activity on AIM increased by 19%, with 37 companies delisting after a takeover in the last 12 months, up from 31 in the previous year.

Laurence comments: “Although the market has contracted, overall some of this is due to M&A activity, which is great news for AIM. It shows that the market is fulfilling its function of providing companies with capital for the next stage of their strategy. Often that is growing to a size where they attract a major investor – be that a trade buyer or a private equity house.”

Money raised on AIM more than triples in a quarter

Laurence adds, “More good news for companies that are considering listing on AIM is that money raised through IPOs has more than trebled over the last quarter.”

The amount of money raised on AIM over the last three months reached £306 million, up from £85 million in the previous quarter (Q1 2015). This period, in the run up to the general election had been the worst quarter of AIM for IPO money raising since Q1 2012.

Some of the quarter’s biggest AIM IPOs included:

  • Verseon Corp, a US biotechnology company, which raised £65.8 million
  • Elegant Hotels, a luxury US hotels group with hotels in Barbados, which raised £63 million
  • Gateley, the first UK law firm to IPO, which raised £30 million
  • Egreen, the Irish forecourt retailer, which raised £51 million
  • Adgorithms, an Israeli company specialising in online advertising, which raised £27 million
*Year end June 30 2015