David Mackey looks at some of the current obstacles to listing on AIM.
Tough trading conditions and depressed lending mean that raising finance remains a big issue for many SMEs. Our 2011 AIM survey, as well as anecdotal evidence from clients and advisers, suggests that more and more companies are hesitant about listing on AIM. On the other hand, nearly two-thirds of our survey respondents said an AIM listing was good for their business. It would therefore seem that AIM companies remain confident about the benefits of listing, despite difficult market conditions.
Listing on AIM can significantly raise a company's profile and status, particularly internationally. But a successful listing requires a major commitment and drive to succeed from management.
Reasons for choosing whether or not to list will vary from company to company, but below we highlight three key issues for companies to consider.
Time is money
The timing of a listing can significantly affect the value of funds raised. Many of the factors that determine the success or failure of a listing are outside the control of both the company and its advisers. Strategic planning and market awareness are key to reducing the impact of external factors on raising the necessary target funds.
Investor confidence is notoriously volatile for small-cap companies, resulting in an exponential effect on fundraisings. In the year to December 2012, £3,116m was raised compared to £4,269m during 2011. As the economic outlook is not too dissimilar to a year ago, it would appear that investors are diverting funds away from AIM to secure an investment that carries less risk. Weak investor confidence acts as a disincentive to listing for many companies.
Weighing up the cost
The benefits of being a listed company on an exchange- regulated market are numerous, but seldom without expense. According to the Financial Times, listing fees have soared to 11% of funds raised, compared to just 7% from 2008 to 2010. This represents a significant reduction in the funds available for investment, as well as impacting profitability in the year of listing. It is no surprise that this has made alternative forms of funding more attractive to potential growth entities.
Non-cash costs to the business can also have a negative effect on entities looking to list. The most significant is the public scrutiny that comes with listing. Following a listing the board must be prepared to act for a public company under greater scrutiny by the market and media, and which must now comply with the AIM rules.
While choosing advisers carefully may lead to a reduction in costs, given that investor confidence is low, a key factor in selecting advisers may well be appointing those with a proven track record to increase the probability of success. It is crucial that you find advisers who understand your company and with whom you can have a good working relationship.
Putting a value on success
The success of any listing is measured by the value of the funds raised. An appropriate valuation is vital to raise the funds required by the project and to avoid the potential PR disaster of a failed listing. Management has the difficult task of looking past their enthusiasm for success and ensuring they work with their advisers to set a realistic price to generate the cash required.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.