How to float on AIM
Article Date: Sep 14 2006
London’s junior market has developed a strong reputation for attracting growth companies looking to float on a lightly regulated market. GrowthBusiness explains the basics of going public and picking the advisory team to help you reach new heights.
Floating your company on a public stock exchange must be one of the key goals of any ambitious entrepreneur. It’s a way of raising money or collateral for future growth and of crystallising your own reward for building up the business. A stock market quote can provide a starting price for eventual trade sale negotiations. It can also enable you to provide your key employees with worthwhile incentives.
AIM, the junior partner of the London Stock Exchange (LSE), has established itself as the preferred route for younger companies wanting to go public. In its 11 years of existence, it has raised some £32 billion for 2,438 companies of all shapes and sizes. Overall, 779 companies, ranging from Islamic Bank of Britain to alternative energy group Clipper Windpower, joined the market between October 2000 and September 2005. In that time, 471 companies, 60.5 per cent of the total, raised less than £5 million, while at the other end of the scale, 25 companies raised £50 million or more. Companies raising upwards of £10 million accounted for 24.4 per cent of the companies that listed during that period. So far in 2006, 236 companies have joined the market, raising £5 billion between them.
Taking AIM
For a young company anxious to grow, AIM offers several particular attractions. To list on AIM, as opposed to the Official List, you do not have to show a two-year profits record and there is no minimum percentage of your company which you must cede to outside investors.
A company seeking to float on the Official List must provide a prospectus, replete with every imaginable detail about your business, its history, finances and prospects, and the reasons and detailed terms of the share offer. This document will be expensive and arduous to produce and must be in line with the European Union‘s Prospectus Directive.
By contrast, provided you are seeking to tap fewer than 100 shareholders with an AIM float — say, several institutional investors and some known rich individuals — you need only produce a simpler and much less costly ‘AIM Admission Document’. Instead of vetting, checking and monitoring your business all the time, as the LSE does, AIM places the responsibility for these functions on ‘nominated advisers’, known as Nomads, chosen by the listing companies themselves.
An AIM float by a UK company can also tempt individual investors with useful tax reliefs. These include capital gains tax taper relief, which can cut investors’ tax rate from 40 per cent to ten if they sell out at a profit after four years.
If your company qualifies for relief under the Enterprise Investment Scheme — is not a finance or property company, a foreign-based concern or chiefly involved in natural resources or commodities — UK investors can obtain 20 per cent income tax relief on their initial investment. If they hold on for at least three years, they pay no capital gains tax if they sell.
Floating on AIM used to be significantly cheaper than the main LSE in terms of commissions and fees, though regulatory tightening has reduced the difference. Most participants say the overall bill works out at between six and seven per cent of the amount raised, with fixed fees adding up to around £400,000 for advisers, lawyers and accountants, even if you raise no new money at all.
Define your goals
Before floating, it is important to clarify what you hope to achieve. Ged Mason, chief executive of Manchester-based technical staff recruitment specialist Morson, is clear about why he took the company to AIM this spring, raising £36 million at 160p at a cost in fees and commissions of around £2 million. Barclays Private Equity had a 55 per cent stake and wanted an exit. A £54 million buyout, funded by debt and family money, achieved this but left Mason and his family laden with debt.
‘We did not want to exit through a trade sale,’ he explains. ‘But we wanted to de-gear and be able to bid for other companies using shares and to crystallise value for management.’
Property man Farouk Sheikh, executive chairman of Potters Bar-based specialist care home group CareTech, says he also wanted to ‘empower and motivate’ key staff when he floated the family-controlled company on AIM last autumn with an £11 million placing at 160p. The funding, which Sheikh says cost between six and seven per cent of the sum raised, cleared the company of debt and will help it fund future acquisitions.
Unlike Mason, he has no intention of diluting the family stake by doing this with shares. He argues there’s no need to, ‘as there’s so much money around.’
Richard Warr, executive chairman of biotech hopeful ImmuPharma, which joined AIM with a £2 million fundraising, says the company ‘consumes cash’ in developing a potential treatment for an as-yet incurable illness. ‘We will go on needing cash up to the point where we can get a collaborator.’
To that end, the company needed not only the cash raised on AIM, but also the credibility inspired by a forward-looking working capital statement signed by its nominated adviser, Dawnay Day. ‘AIM is a tremendous place to list,’ enthuses Warr, a financier by background, who prefers it to being ‘gouged’ by a venture capital group.
‘Many companies have raised money privately with venture capitalists. But they always want to take lots of your company from you and there is always in-fighting over pricing.’
Stuart Barker, finance director of London-based Asian gaming and lottery operator Betex, would heartily agree. Previous dealings elsewhere with private equity and venture capital groups had been ‘unbelievably painful’, as they almost sought to ‘micro-manage’. AIM provided a ‘more structured and better programmed’ route to raising £13.6 million, before £1.1 million fees and commissions, for Betex’s planned development.
Oilman Mike Garland also wants AIM to tide over his US-backed company, Dominion Petroleum, with £33 million, as it looks for oil and gas in Tanzania. US hedge funds have put money in, but, he insists, London, whose overall fees and commissions are likely to be around £2 million, is the Mecca for funding: ‘London understands oil and gas and it understands Africa.’
