US companies are joining Aim in ever greater numbers – and provoking some heated debate. Quoted Business talks to Aim’s Richard Webster-Smith about the US influx.
Aim is growing rapidly. How many US companies are now involved?
There are currently 76 US companies from a huge range of sectors – everything from finance and insurance to media and automobile parts. But the most popular areas are renewable energy, software and biotechnology, which tend to be better understood by investors in London. These are also more globalised industries so, for many of the companies concerned, there’s a desire to be listed alongside their global peers.
As far as geographical spread goes, they come from across the US, although most are centred around America’s main venture capital hubs such as the West Coast, Massachusetts and Chicago. This is often because Aim is a logical next step from venture capital funding.
Is it true that overseas companies listing on Aim tend to be larger than UK companies?
Yes, they do tend to be. I think there are two main reasons for this. The costs involved in listing overseas can be higher. For example, there are additional travel, advisory and staff costs that might be incurred. And secondly, institutional investors tend to lean towards slightly larger companies when investing overseas.
Why are many choosing to set up a UK holding company rather than listing their US company shares?
This is mainly due to restrictions imposed by the US SEC’s Regulation S, which limits the number of shareholders US companies are allowed to have if they take a primary listing on an overseas exchange. To overcome this, many are choosing to set up a holding company in places like the UK, the Channel Islands or the Cayman Islands. This route could also bring some tax benefits for the company in question. So far, around 40% of US companies quoted on Aim have followed this structure.
Who is investing in US companies on Aim?
At the moment, Aim is largely institutional investor-based, with around half of shares held by large institutional managers, mainly in the UK. But this is changing – we’re increasingly seeing Aim’s investor base internationalise and more participation from professional investors from the US.
Why are US company executives considering Aim? Have these reasons changed in recent months?
Aim is now the pre-eminent growth market in the world. It offers a good combination of an appropriate regulatory model designed for the needs of growing companies and, at the same time, good protection to investors. It also provides high levels of analyst coverage and a deep pool of institutional investment capital.
Equally important, it is potentially a lower-cost route to public equity markets compared with other US exchanges. This cost element means that for companies in the US, achieving entry into Nasdaq is now pretty much out of reach for those with a market cap of under $400-500m. They are looking for other options, either other financing options in the US or a listing overseas. If they choose the latter, Aim is the logical choice – it’s well ahead of other international growth markets.
Finally, I believe success breeds success. As companies in the US see their peers doing well, they decide to hop on board. And this growing confidence means that lawyers and investors in the US are becoming more comfortable with the whole concept of Aim, and more happy to recommend it.
Does the London Stock Exchange make trips to the US or rely on intermediaries to spread the word?
The Exchange has been very proactive over the past three years or so in the US. We work mainly in partnership with the advisory community, running seminars with law firms and UK-based Nomads. Last year alone, we participated in 64 seminars in cities across the US.
Over time, our pitch has certainly changed. In many ways the profile of Aim was raised in the US when Nasdaq launched its hostile takeover bid, and these days we don’t have to explain what Aim is – people are much more interested in the details. In addition, our focus is now on broadening interest among the institutional investor community.
What reasons do US company executives give for dismissing Aim?
For a US company to choose to float on Aim, in many ways it requires an intellectual leap of faith on their part. The US is home to one of the world’s largest and most liquid capital markets and, up until now, it has entirely satisfied the financing needs of US companies. Companies may think they can get a lower market valuation, and some even believe it will be an admission of failure if they go outside the US. These reasons can be hard to fathom.
That said, we agree that Aim isn’t right for everyone. If you’re purely a domestic US company with no international aspirations, then Aim is probably not suitable. In fact, we would say that for the large majority of US companies, it isn’t suitable. However, for a very substantial minority of fast-growing, internationally focused, smaller companies, it’s a great option.
Is Sarbanes-Oxley still driving business away from US markets?
It’s clearly having an impact, but it’s not the only factor. Perhaps more important is the relatively low level of analyst coverage, poor liquidity and high costs that smaller US companies face on domestic exchanges. Also, the strength of the small cap advisory community in the UK is certainly a draw. Arguably the relative depth of such advisers in the US is not as great since the dot.com bubble burst.
What other options are available to US companies for raising funds?
There are three viable alternatives. First, many venture capital (VC) firms are extending their investment horizons and keeping companies under their wings for longer, so more VC funding is a possibility. They could attempt a reverse merger into a company that’s already listed, but this can be complex. Or they could look to angel investors or traditional bank funding.
Have the comments from Roel Campos and John Thain harmed Aim’s reputation?
We strongly refute some of the ill-informed comments about Aim that have emerged from the US recently. These comments probably reflect confusion about what a principles-based regulatory regime looks like, and a lack of knowledge about Aim itself. They seem to believe that Aim is some kind of regulation-free zone when, in fact, nothing could be further from the truth. Whether they have been misinformed or are being plain mischievous, we don’t expect it to challenge our role or impact on our success.
Despite these comments, we’re continuing to see many of our rivals trying to emulate Aim. A plethora of smaller growth markets have been springing up around the world trying to recreate our Nomad structure. They say imitation is the highest form of flattery!
What does the future hold for Aim and the US market?
We’re hoping for continued strong growth. Part of this will involve strengthening ties between the investor and advisory community. At the same time, we’re looking to make sure that US companies that have already listed on Aim make the most of the opportunities and liquidity available, and come back to the market for further funding. Whatever happens, we certainly won’t be standing still.
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