AIM Report 2019

Market update / Fundraising update Market update / Fundraising update 10 11 Another indicator of the negative market sentiment among small businesses can be seen in the number of new issues raised on the market so far in 2019. By May 2018, AIM had seen 22 new issues over the course of the calendar year. However, in May 2019 that figure stood at just 10. Altogether, year-to-date new issues had raised £108.2 million in May 2019, compared to £467.72 million in the same period a year earlier. Market consensus seems to indicate an expectation that this lower level of activity will continue, with many management teams wary about what the immediate future may hold – not least when it comes to Brexit and any new direction from government under its new leadership. Suggestions that a General Election could be held before the next scheduled date of May 2022 may also have played a part in companies’ general feeling of uncertainty. When looking at both new and further money raised by sector for the year-to-date at May 2019, all but one performed either in line with or below the performance seen a year earlier. Only the Financials sector showed a noticeable uptick in 2019, reaching £752.21 million, compared to £472.54 million in the first five months of 2018. Nevertheless, despite the turmoil that affected all UK equity markets in Q4 2018, 8 new IPOs were announced, raising more than £100m from the issue of new shares. 2 As BDO put it in its Direct AIM publication in March 2019: “While UK markets have seen the IPO pipeline slow in 2018 as compared to 2017, the UK still remains a highly attractive destination to take up a listing.” So demand remains, even in the most difficult times. The first two of these changes came into force on 30 March 2018, while the third applied from 28 September 2018. The early notification requirement has been introduced to streamline the process and reduce the risks of a delay, postponement or withdrawal of a proposed admission by eliminating any potential issues towards the end of the application process. Overall, these changes should be seen as beneficial to investors by seeking to ensure AIM companies focus on their corporate governance and cannot simply get away with a tickbox exercise. Research from the Quoted Companies Alliance (QCA) and UHY Hacker Young published in December 2018 suggested companies are going to have to take greater positive action in communicating with their shareholders and other stakeholders. 3 From a shareholder’s perspective, any additional transparency here must be favourable. One notable absentee from the rule changes, which had been included in the initial consultation, was a potential tightening of the entry criteria. The discussion paper had considered whether to introduce (1) a minimum free float, or portion of a firm’s shares that can be publicly traded with the intention of minimising the risk of investors exercising little control over the company, and (2) a minimum capital raising threshold, bearing in mind the increasing market capitalisation of AIM companies and the average amount of capital raised. This topic generated the greatest level of feedback on the LSE’s discussion paper, with “strong support that the current approach to free float strikes the right balance”. As a result, the LSE concluded it would not proceed with these changes. Another proposal that did not make it through was the potential for the LSE to introduce concepts such as automatic fines for certain explicit breaches. Again, the feedback suggested this would not be helpful, given the limited breaches that they could be applied to, and as a result, the LSE dropped this proposal. NUMBER OF NEW ISSUES AND MONEY RAISED SOURCE: LSE AT MAY 2019 IPOs TRANSFER TO AIM RE-ADMISSIONS INTRODUCTIONS & OTHERS 22 new issues £467.72 raised YTD MAY 2018 10 new issues £108.20 raised YTD MAY 2019 Among the examples given as areas that the Exchange will generally consider as matters that could affect appropriateness under Rule 9, are: • questions as to the good character, skills, experience or previous history of a director, key manager, senior executive, consultant or major shareholder • the rationale for seeking admission to AIM is not clear • formal criticism of the applicant and/or any of its directors by other regulators, governments, courts, law enforcement or exchange bodies • the applicant has been denied admission to trading on another trading platform or exchange • the applicant has a vague or ill-defined business model or business operations • corporate structure and business models which may give rise to concerns regarding appropriateness for a public market • the applicant holds a derivative or economic interest in a material part of its assets or business operations via a risky contractual arrangement with the owner of the assets or operations rather than by owning them itself or through a subsidiary Rule changes In July 2017, the LSE published a discussion paper advancing changes to the AIM Rules, and in March 2018 it confirmed a number of changes designed to raise the entry bar and boost the image of the market, to improve the quality of new entrants to London’s junior stock market whilst retaining accessibility for investors. MAIN RULE CHANGES • Early notification: nominated advisers (Nomads, see below) must submit a template early notification form to the Exchange, prior to submission of the Schedule One form, setting out key information on the company and its proposed admission. Where this is not yet available, the adviser must update the Exchange when it becomes available. • Assessment of appropriateness: AIM Rule 9, Schedule Three to the AIM Rules for Nominated Advisers now includes a non-exhaustive list of matters that could affect an applicant’s appropriateness for AIM. • Corporate Governance: An AIM company must provide details on its website of the ‘recognised corporate governance code’ that it has decided to apply, how it complies with that code and, where it departs from this, an explanation of the reasons for doing so. This information is to be reviewed annually.