The Alternative Investment Market (AIM) has seen the number of companies quoted on it continue to fall, but its head explains the secret that will ensure its success.
Since 2014, the number of companies listed on the “world’s leading growth market” has fallen every year and is now below 900. Alongside companies leaving the exchange, this year has been particularly affected by a lack of new businesses coming onto AIM – a trend that has been mirrored on the main FTSE market as well.
A variety of reasons for this have been put forward, with Brexit worries considered to be a major factor behind the lack of IPOs.
However, it’s not just Brexit that is believed to be behind the falling number of companies listed on London’s junior stock exchange – after all, the figure was falling even before the 2016 referendum, and is a long way from its peak of 1,694 in 2007.
Some point out that with interest rates at all-time lows money is cheap and so small companies are able to get the investment they require from private equity and alternative finance. Such an approach also means these small businesses are able to get the cash they need without having to adhere to AIM’s corporate governance rules.
Others add that it is AIM’s reputation and these governance rules that are part of the problem, suggesting that recent scandals such as the issues at Patisserie Valerie and the collapse of Conviviality have shown the rules to be unfit for purpose. For its part, the London Stock Exchange Group argues that it is trying to strike a good balance between giving companies the freedom to grow, and holding them to appropriate standards.
Marcus Stuttard, head of UK primary markets & AIM, remains relatively relaxed about the number of companies listed on the exchange. Speaking to us for our AIM Industry Report 2019, he explained that it’s not all about companies listing on AIM. The London Stock Exchange Group works “in a joined-up fashion” with small businesses and other initiatives such as the British Business Bank to help companies access the funding that is most appropriate for them. And as those avenues have increased in recent years, it may be that companies that had previously had little choice but to list on AIM to open up their doors to new investment, are now finding different ways of getting the money they need.
“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 fewer but larger companies on the market.”
And that is reflected by AIM’s market capitalisation and its ability to raise significant sums. Recent research published by accountancy firm UHY Hacker Young found that in the year ending in September, £3.9bn of capital was raised on AIM in company floats and secondary fundraisings. That is compared to just £1.9bn raised on the next four biggest growth markets combined.
The question of diversification is one that often comes up during our Showcase events, and was a regular topic of discussion in both our recent AIM Showcases and in May’s Business Relief Showcase series. In both cases, experts pointed out that, where AIM is concerned, there remains plenty of choice, with one describing it as “a Galapagos” of opportunity, such is its diversity.
It seems, then, that investors can still derive good value from investing in AIM-quoted companies, proving that a longer list of companies in the past is not necessarily better when it comes to the Alternative Investment Market.
To read our AIM Industry Report 2019 for free, click here