Jump in insolvencies amongst AIM listed companies

Publications that covered this story include The Times on 2 January 2019.
  • AIM’s 20% fall undermines the ability to raise extra funds to feed cash burn

There has been a sharp jump in the number of companies that have been forced off the AIM junior stock market due to insolvency. 16 AIM companies were forced off the AIM market due to insolvency or financial stress in 2018, up from just nine in 2017.

Increased nervousness amongst investors in Q4 2018 has made it harder for loss-making AIM companies to raise additional finance by selling shares. Loss-making AIM companies often have secondary fundraisings on AIM, after their IPO, in order to fund themselves until they are cash generative.

The AIM market fell [20%] in the last quarter of 2018 as the global sell-off in stock markets caused investors to mark down early-stage companies more aggressively. That sharp fall has damaged the confidence of investors being asked to fund those AIM businesses that still have both a rapid cash burn and that have made little progress towards break-even.

Says Laurence Sacker, managing partner in our London office: “Investors are now more nervous of providing extra funding to keep some of the financially weaker AIM companies going – it’s an inevitable consequence of stock market volatility.”

“A good AIM company will be able to raise further funds in all but the toughest of markets but a more marginal company will find it much harder to issue shares at the moment. Investors are trying to reduce their exposure to smaller riskier companies at the moment.”

“In an overall weak economy banks and other lenders are also looking more closely at whether they want poorly performing borrowers drawing down further tranches of loans, and that is adding to the pain of some AIM companies.”

Laurence Sacker says that the collapse in oil prices has also hurt investor sentiment towards core AIM sectors such as energy and mining.

Overall, 52 companies delisted from AIM in 2018 (for reasons other than being taken over) up marginally from 50 in 2017.

If companies are not delisting from AIM because they are being taken over or becoming insolvent then it will normally be because of one of the following reasons:

  • The company’s strategy has failed e.g. it has failed to make an acquisition – 17% of delistings in 2018
  • The company has lost its Nomad – 12% of delistings in 2018. Companies need a Nomad to maintain an AIM listing. Lower profitability amongst Nomads (partly due to Mifid II) has caused some Nomads to drop their riskier or less remunerative AIM clients
  • AIM’s costs and compliance burden have been too high – just 6% of delistings in 2018
  • Being promoted to a listing on the main market of the London Stock Exchanges – 6% of delistings in 2018
  • Choosing to delist from AIM in favour of another stock market completely – 5% of delistings in 2018

Adds Laurence Sacker: “Overall 2018 has been a good year for AIM with the market really growing in stature, and the new corporate governance code for AIM companies is an important part of that. However, the last quarter has been particularly tough – in share price performance alone it has been one of the worst in that last five years.”