This piece has been published as part of the Alternative Investment Market Report 2019. For the full report click here

The number of companies listed on AIM today is 901. The figure has now fallen every year since 2007, when there were 1,694 on the index. While 2016 saw a higher reduction in international companies as the Brexit vote filtered through, there is now no discernable difference in the reductions between UK companies and overseas companies. In May 2019 there were 14 fewer UK companies listed (767) compared to the end of 2018, while there were 12 fewer international companies (134) than at the end of 2018.

At first blush, this might seem like a negative for those looking to invest in the market, with potentially less choice than in the past. However, there are reasons to see this decline as a sign of strength in the UK’s small business community, and there remain a wide variety of companies to choose from.

A number of factors, including small business market sentiment and the propensity for larger firms to buy up smaller companies at a younger stage in the search for higher growth, may be at play here. This means that there are fewer companies, but with a growing average value. These signs have to be seen as encouraging for a growth market. 

Marcus Stuttard, Head of UK Primary Markets & AIM at London Stock Exchange, told us in July 2019 that an important factor here is the way in which the London Stock Exchange works with the small business community “in a joined up fashion”. He pointed to government initiatives such as the British Business Bank, meaning that a “vibrant equity funding market for growth companies” now exists for funding to be raised from a variety of different sources. 

“As AIM has matured and the pool of capital continues to deepen, some of the larger investors that haven’t typically invested in growth companies are looking at AIM,” Stuttard added. “That is also contributing to larger transactions and companies on the market.”

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 over 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.

This piece has been published as part of the Alternative Investment Market Report 2019. For the full report click here