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NEW ANGLIA SCALE UP NEWS

Keep updated with the latest high growth news and what we’ve been up to at Scale Up New Anglia

AIM Remains Europe’s Leading Growth Capital Stockmarket

In its 25th anniversary year, London Stock Exchange’s AIM market remains home to over 840 UK and overseas growth companies, with a significant representation of Technology and Healthcare-related businesses.   Since the market’s launch, a total of over £118 billion* of growth capital has been raised, of which approximately 40% has been at the point of flotation (or Initial Public Offer / IPO), with the balance subsequent to that, in order to fund continuing organic growth and/or acquisitions. 

This funding is drawn from a wide range of UK and overseas institutional investment funds, wealth management groups and private investors, many of whom are specifically interested in growth companies that may, over time, provide above-average returns on investment and some of which have built-in tax-efficient benefits.

 

Typically, companies reach a certain stage or critical mass and need to raise fresh equity to fund their continuing growth. A common scenario would be a start-up, initially backed by founders, friends and families and local or regional accelerators and investment funds that reaches early commercialisation stage, but is probably pre-revenue and very much in continuing R&D and investment mode.

 

Having reached this stage, the next generation of equity funding sources for this company may be a blend of more of the same but also venture capital or Venture Capital Trusts, with debt options often remaining limited due to limited free assets or cashflow.

 

As the company progresses through this stage to growing (and ideally recurring) revenues and with profitability and positive cashflow in sight or achieved, the next generation of potential investors could potentially be private equity or via a public listing, on AIM.

 

Both offer development capital at the point of entry.  Both offer relatively easy access to follow-on funding.  Both are interested in businesses with strong management, defensive propositions (even if early stage) and with clear routes to growth and which they and incumbent owners/managers can make money on.

 

Looking more closely, there are perhaps five main and fundamental differences between private equity investment and IPO:

 

Private Equity:

  • usually invest with a given time frame in mind, often three to five years
  • will have board representation and major input to strategy and overall performance
  • with a casting vote or equity control, may have the final say on exit path
  • external financial reporting is limited to Companies House obligations
  • invest via a fund, so less liquid shares and share options

 

AIM:

  • investors have an open-ended mindset and will buy, sell or adjust their holdings largely on the basis of the company’s actual or expected performance
  • are unlikely to be represented on the board; more they are “hands off” from a day-to-day perspective, but will monitor progress and events closely and welcome active dialogue with management, particularly around events such as publication of results
  • will not be overly-focused on exit but may be more attracted by opportunities where a clear path is probable, such as trade sale
  • financial reporting is based around published half and full-year results, to support visibility and a fair valuation for the shares
  • investors buy shares in an open market. Those shares are freely traded on AIM and provide instant liquidity and real-time valuations.  AIM shares are treated as “unquoted” by HMRC and are thus potentially eligible for a range of tax advantages, such as Business Property Relief and CGT reliefs.  In addition, AIM shares may qualify for EIS relief, are Stamp Duty-free and can be held in SIPPS and ISAs

 

With the two stand-out features of AIM being managements’ independence to set their own agendas and strategies and to deliver on them, together with the very tax-efficient nature of the market, professional advisors are key:  AIM is supported by a wide range of advisors that specialise in both achieving successful IPOs and also working to support companies as they go forward.

 

Core to the advisory team is the company’s Nominated Advisor.  These are financial advisors that have the dual responsibility of planning and executing the IPO – typically with a 6-12 month run-in – and then advising the company on a day-to-day basis thereafter.  Usually, they will also provide the fund raising function for the IPO and manage the client company’s interests with investors thereafter, to include follow-on fund raises.

 

The preparation for IPO and the process itself is significant but also a test for ambitious management teams.  The resilience and ability of so many has recently been tested by the COVID-19-driven need suddenly to adapt working practices and indeed whole businesses to new ways of working.

 

This is particularly evident in areas of Technology and Healthcare where companies have re-orientated themselves to prevailing conditions or to target new opportunities.  AIM has helped some of them rise to the challenge:  since 1 March, we have seen so far a total of £340m* of fresh equity raised by Healthcare companies on AIM alone.

 

Finally, from acorns……an AIM IPO is not an end in itself; more it is the next step in a company’s evolution and ownership.  All of today’s largest companies listed on the Main Market in London – some of them household names – started somewhere.  Many have been listed in London for decades.  Yet it is recent events that have highlighted how resilient the markets are and the levels of investor support available in the most trying of times, with, so far, since March 1, over £14 billion* of new equity raised to support those companies’ next stages of growth.

 

If you would like to explore this further, please visit www.londonstockexchange.com or contact:

 

Tim Davis

Regional Head, UK Primary Markets

Tel: 07929 013974

Email: tdavis@lseg.com

 

 

*Data source:  London Stock Exchange