Should you list on AIM

If you are a company looking to expand through acquisition, floating on AIM could be a viable way to raise acquisition finance. Since AIM opened in 1995, it has raised a collective £24bn for the 2,200 companies that have been admitted. Unlike the main market stock exchange, there is no requirement for a 25% public shareholding, and no minimum market capitalisation. Nor does a company need a trading record to list on AIM.

Floating on AIM allows a company to offer share incentives to its staff, raise its profile, and take advantage of certain tax benefits. However, a flotation is not always in a company's best interests, and there are many factors to consider.

Far from being 'quick cash', the process of becoming a listed company is long and arduous. You can expect to be consumed by the process for every waking moment of several months. If you go ahead with a flotation, make sure you have a good operational team in place to continue driving the business forward while you are tied up in the flotation procedure. Indeed, if the company cannot continue without you at its helm, this is a poor indicator of its suitability for a flotation. Shareholders will want to know that the company will continue making money when you are no longer involved with it.

You will need good advisers by your side - indeed, a nominated adviser is required at all times according to the AIM admission criteria - and it is important to be clear from the start what the roles and responsibilities of each adviser will be. The last thing you want is an important task left undone and no-one taking responsibility for it.

Last but not least, floating on AIM is expensive. You need to weigh up the potential cash gain against the costs of the listing process. Generally speaking, you should be looking to raise at least £4m from the flotation to justify the costs. Most listings incur costs of about £400k, plus brokers' fees of about 4%. A study by accountants UHY Hacker and legal firm Trowers & Hamlins found that the average cost of a listing that gained up to £2m was 24.9% of the funds raised. This compared with companies who gained more than £10m on AIM, whose costs were, on average, just 8.2% of the funds raised. If it is acquisition finance you're looking for, and you're likely to be paying nearly a quarter of your gains in fees, you might be better off looking for an alternative source of funding.

So what sort of company are investors looking for? People who buy shares in AIM-listed companies are generally looking for something interesting with growth potential. A solid, predictable business is unlikely to generate much excitement amongst investors. They are looking for a unique market proposition - a company that has an edge over its competitors.

If you do go ahead and float on AIM, remember that you need to deliver on whatever growth promises you make. If, 12 months down the line, you haven't expanded through acquisition, or increased sales, or whatever you said you would do, you will be in a lot of trouble with your shareholders.


Pros and cons of an AIM flotation.

First, the benefits. The reason a lot of companies choose to float on AIM is to raise acquisition finance - this is one AIM's key benefits. You can sell some equity, retain control of the company, and fund your acquisitive growth. Unlike a main market listing, AIM does not require that a minimum of 25% of shares must be placed in public hands, so you can choose how much equity to release.


An AIM listing can also provide existing shareholders with an opportunity to unlock some of their equity and realise their investment. They will have the option of doing this as soon as the company goes public, or at a later stage when the share price promises a good return on their investment. It is worth bearing in mind, however, that if shareholder exit strategy is the only or main reason for the flotation, a trade sale may be a simpler way out of the business.


The raised profile enjoyed by listed companies could be a major advantage to your firm. A listing could be what your firm needs to impress customers and suppliers, and to go after bigger deals. If you are a smaller company, a larger customer will be reassured that your company has received regulatory approval and has undergone a rigorous due diligence process. In addition, a broad range of high quality investors will increase your company's credibility.


Providing a market for your company's shares at an externally-agreed price stimulates liquidity in the shares and broadens the base of shareholders, who have the opportunity to realise the value of their holdings.


There are a number of tax benefits available as a result of an AIM, rather than a main market, listing because the company retains an unquoted status for tax purposes. The most obvious one being that you do not need to pay inheritance tax on unquoted company shares.


Employees can be given shares in the company, which can help increase their motivation and commitment, and consequently their productivity. A share ownership scheme also means your company will be able to recruit good people when you need more staff.


An objective market valuation will be provided for your business, which will provide a range of benefits in itself. For example, if you're merging with another listed company, you will know what your company is worth compared to theirs which will help you structure the deal. Your employees, if they are included in a share ownership scheme, will be able to put an exact figure on the value of their holdings.


If you're listing on AIM to fund acquisitions, there are opportunities you can take advantage of, such as the capability to issue paper with a market value as an acquisition currency. Combined with greater access to capital, your potential to make acquisitions of private or quoted companies should widen.


The requirement for more rigorous disclosure tends to result in improved operating efficiency for a company. Better systems and controls as well as improved management information will need to be put in place, and this will benefit your company as a whole whilst also fulfilling its disclosure requirements.


Side-to-side with the benefits outlined above are a number of considerations you may wish to think through before deciding to go ahead with a listing.
Your business will be affected by market conditions beyond its control. Even if it is a robust, well-run business, you could find the price and liquidity of its shares fluctuate along with market conditions. Especially if the company is on the small side, you could find the stock becomes illiquid at times, and companies of any size can see their share price fall as a result of market rumour, economic developments or events elsewhere in the same industry.


To make things worse, you may well find the high degree of press interest in your newly-listed company that you enjoyed at the time of flotation becomes unwelcome if things aren't going so well. Any under performance can directly impact on the share price, especially if the under performance is highlighted by the press.


The company is under obligation to disclose any new developments not known to the public, such as its financial condition (including profit warnings) and sphere of activity. Such announcements must be carefully handled, and you may need to appoint - and pay! - Advisers.


Costs and fees, if your company is relatively small, could outweigh the benefits. It is generally accepted that you need to raise at least £4m from a flotation to justify the expense.


Last but not least, there are a range of management issues. The directors of the company will inevitably have to forgo the privacy and autonomy they enjoyed when running a private company because of accountability to the shareholders. The loss of the directors autonomy combined with their new responsibilities could result in them deciding they simply do not like running a listed company. You must be prepared for the possibility that some of your senior management may not wish to remain with the company.


Even if management do stay on, a lot of their time will be taken up with the listing process - time which could otherwise be spent running the business.


If you decide the benefits outweigh the potential disadvantages, you will need to appoint your Nomad (nominated adviser). He or she will have a checklist of criteria which they will use to determine your suitability for AIM:

Does the company have a management team with the experience to run a public company?

Does the company have a viable business model for growth and investor value?

If the AIM admission involves a fund raising, can the broker raise the funds at a valuation acceptable to existing shareholders?


The quality of the management is what a company will be judged on most of all. The Nomad will want to be sure that the management is, firstly, competent, and that they are fully aware of the costs and obligations of being an AIM company. Directors should show evidence that they have considered and rejected the alternatives, and that they are seeking admission to AIM for good reasons.

However, even if the management is highly capable, the business they are running must be viable. If the business model is fundamentally flawed, it will not appeal to investors. Look at your company's past financial performance, products, customers and suppliers. If your company is profitable it will be a strong candidate for admission. If not, you will need to show evidence to your Nomad that it will become so before long. A Nomad will only bring your company to market if it is showing every possibility of being a long-term success. With AIM's popularity soaring year-by-year, you must be able to offer value to investors should you decide to list.

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