- Broker fees now account for almost 10% of all funds raised
The cost of listing on the AIM stock market has increased over the last year* as companies rush to take advantage of the window of opportunity to raise funds being created by buoyant market conditions, according to our research.
The professional fees paid by companies to brokers and nomads for a placing on AIM now account for 9.5% of all funds raised, up from 8.4% in the previous 12 months**.
We explain that the current high investor demand for AIM shares and the resulting flood of new issues is helping to drive up listing costs as it creates increased demand on the limited number of brokers available to work on an IPO. There were 76 IPOs in the year to March 31 2014, compared to just 44 in the previous year.
This increase in IPO activity is partly being driven by private equity companies that develop many medium sized businesses with a view to floating them, deciding that now is a good time to exit as investor interest heats up. AIM has been largely closed to IPOs for the last five years, with businesses deterred by the changeable market conditions and negative sentiment from investors during the financial crisis.
We explain that the increasing buoyancy of the market and the success of recent flotations is encouraging a growing number of businesses to raise new money through IPOs.
Laurence Sacker, Partner says: “Broker fees are being boosted by the rush in new IPOs coming onto AIM as many companies look to capitalise on renewed investor demand by raising funds.”
“The resurgence of private equity backed IPOs is now helping to restore confidence in the market and encourage a flurry of interest in listings on AIM from other companies.”
“The revival of appetite for AIM IPOs has been some time in coming, and businesses are focused on seizing the opportunity to get the right valuation for their companies, and if they need to pay slightly higher professional fees to get the float through soon, it is a cost they are prepared to swallow.”
Some of the most recent entrants to AIM include Boohoo, the online fashion retailer, and A.O.com, the online electricals retailer, which raised around £300m and £60m respectively.
We add that a number of companies that listed on AIM in the last year only raised a small amount of capital on their initial listing. This means that the high professional costs paid towards their listing relative to money raised will also be a contributing factor in driving up the total cost of listing on AIM.
However, Laurence explains: “The capacity to raise funds multiple times on AIM is especially attractive for many companies and is part of what made AIM so successful when other growth markets failed. A company that raises a small amount of money on its first listing usually expects to go back to the market again and offset its listing costs still further by raising more capital.”
Average costs of AIM IPO as a percentage of funds raised – includes fees to London Stock Exchange and to professional advisers over the last two years
*2013 (Year to 31 December)