AIM Industry Report 2017/18

12 13 MONEY RAISED (£ MILLIONS) YEAR NEW FURTHER TOTAL 1995 71.2 25.3 96.5 1996 522.1 297.1 819.2 1997 344.1 350.1 694.2 1998 267.5 317.7 585.2 1999 333.7 600.2 933.9 2000 1,754.10 1,338.30 3,092.40 2001 593.1 535.3 1,128.40 2002 490.1 485.8 975.8 2003 1,095.40 999.7 2,095.20 2004 2,775.90 1,879.50 4,655.30 2005 6,461.20 2,481.20 8,942.40 2006 9,943.80 5,734.30 15,678.10 2007 6,581.10 9,602.00 16,183.10 2008 1,107.80 3,214.50 4,322.30 2009 740.4 4,831.10 5,601.60 2010 1,200.80 5,649.00 6,849.90 2011 613.9 3,680.80 4,294.70 2012 712.1 2,451.30 3,163.40 2013 1,190.90 2,715.70 3,906.70 2014 2,604.30 3,122.40 5,726.70 2015 1,240.00 4,216.00 5,456.00 2016 1,103.70 3,661.90 4,765.50 2017 1,224.54 2,765.80 3,990.34 launch to date (Sept 2017) 42,971.7 60,985.1 103,956.8 However, as the data is only correct up to September 2017, we expect the number of new issues to increase in the remaining three months of the year. £3,990.34 million was raised by the end of Q3 2017 – down from £4,765.5 million in the whole of 2016. The 2016 figure was exceeded by the end of 2017 and while follow-on fundraising by existing issuers up to the middle of December 2017 was up over a quarter from 2016, much of the excess fundraising is down to newly quoted companies. In fact, newly quoted companies had already surpassed the fundraising total of the full year for 2016 by 11% in Q3 2017. IPO deal value touched £834 million in the three months to the end of September, the highest for that period since 2007. Stuart Andrews, Head of Corporate Finance at UK broker finnCap called the market at this time “incredibly buoyant” 1 . “Large businesses can afford to put off their big plans and decision-making, but smaller businesses evolve or die. If there are windows of opportunities for them to develop their business, the market is open and equity valuations are good, which is the case currently, they will act.”— STUART ANDREWS, FINNCAP AIM HISTORICAL FUNDRAISING Perhaps the increase in 2017’s follow- on fundraising was partly as a result of market participants becoming more comfortable with the restrictions announced in 2015 that limit the age, number of employees and strategy of companies that can qualify for EIS and VCT. The 2016 figures had dropped after three years of increases, possibly as a result of a knock-on effect in the market, excluding existing AIM-quoted companies that would previously have been able to raise via this route. The 2017 Albion Growth Report cited regulatory change as number four in its ranking of barriers to growth as reported by SMEs and there are further potential changes on the horizon; possible amendments to the AIM Rules were mooted on 11 July 2017 when the LSE released a discussion paper looking at the AIM Rules, with proposals for potential changes and an invitation for feedback. The paper seeks 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. The main areas reviewed were: Entry criteria: 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. Early notification process: whether to require early confidential discussions with Nomads for all proposed admissions (rather than just those where there are unusual features or potential issues) in order to reduce the risks of a delay, postponement or withdrawal of a proposed admission and to avoid issues towards the end of the application process. Assessment of appropriateness: the introduction of a non-exhaustive list as guidance to Nomads of the factors they should take into account when assessing the appropriateness of a company prior to its admission to AIM. Examples of these factors include: • Concerns as to the good character, skills, experience or previous history of a director, key manager, senior executive, consultant or shareholder. • Where 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 platform or exchange. Corporate governance: The possibility of introducing a mandatory requirement for AIM companies to annually comply with the current corporate governance disclosure requirement in AIM Rule 26 and explain against existing codes of governance, such as the Quoted Companies Alliance Corporate Governance Code for Small and Mid-Size Quoted Companies and the UK Corporate Governance Code. Additionally, potential automatic fines for explicit breaches of the AIM Rules are suggested and whether the AIM Rules should require a specific board composition such as a specified number of non-executive directors is considered. Feedback was varied, with the Law Society noting that, “We believe that extending minimum fundraising criteria to all AIM applicants at admission may preclude suitable 2 companies from entering the market.” Since the LSE is already able to prevent admissions for companies that it judges to be inappropriate for AIM, the Law Society sees this potential restriction as unnecessary. The ICAEW agrees, stating, “a minimum threshold is likely to need a list of exceptions to capture the diversity of companies 3 .” Blick Rothenberg appears to reflect general apprehensions in the market, “we are concerned that the proposals as drafted may be a barrier to business, and prevent the very companies that the market was designed to encourage from entering the public stage 4 .” At the time of publishing, the market was waiting for further LSE announcements about any changes to be implemented. In addition to these developments, the Investment Association (IA) has produced guidance regarding long- term reporting in a firm’s annual reports. Although it is primarily for RULE CHANGES AND THEIR EFFECTS ON THE MARKET “Reporting should strive to provide insight into the significant strategic issues, as well as the principal risks, facing the company over the next three to five years.” — THE INVESTMENT ASSOCIATION