Smaller firms looking to float take AIM

Sam Rockey, a Corporate Finance Executive in our Exeter office, looks at one option for smaller companies looking to attract investment from the public.

AIM, formerly the Alternative Investment Market, is a sub-market of the London Stock Exchange (LSE) that is designed to help smaller firms access capital from the public market. 

Before embarking on a listing on AIM, there are pros and cons to consider. These include the following:

Pros 

1. A listing allows a company to raise capital both during the initial public offering (IPO) and from further capital rounds, which can then be used to fund growth.
2. The exercise establishes an objective open market value for the company.
3. It helps to raise the profitability and credibility of a company. This can improve supplier, customer and investor confidence as the company will have undergone rigorous due diligence before listing.
4. A listing increases the ability to reward key employees with shares that hold a clear value and are marketable. Shares and options in private companies do not have a ready market and their value is difficult to ascertain.
5. AIM is better suited for smaller companies as there is no minimum market capitalisation and no stipulations on the proportion of shares that need to be held by the public. 

Cons

1. Accountability and scrutiny.  Listed companies are subject to greater levels of public scrutiny and accountability, as well as increased regulatory burdens compared to private companies.
2. There is a high level of cost associated with a listing, both before and after the IPO. Management will need to invest significant time and effort into preparing the business for floatation. This process can take many months, and even after a flotation there is often a great deal of time-consuming administration to deal with. There is also the ongoing need to publish interim and final financial results, compliance with rules surrounding director share dealings, managing price sensitive marketing information, etc.

Joining

If you have made the decision to float, you will need to appraise your business, be transparent about the business story, assess the attractiveness to investors and identify the amount of work needed to meet all the AIM admission requirements. 

Initial Consideration 

The first point of consideration should be to prepare a robust business plan. 

This will form the foundation of the company’s story when pitching to investors. 

The business plan will also allow you space to demonstrate the management team’s competencies and experiences. Building on the competencies of the management team prior to listing, it is important to establish a strong non-executive director (NED) board.

See our separate article: Private Equity and Venture Capital Investment.

Strategically hiring a NED with a good reputation and a track record for taking companies public can aid in the listing process. 

Management should also consider the quality of internal management information and the company’s financial reporting procedures. Listing on AIM comes with additional reporting requirements, such as annual and interim reporting. 

In addition to internal financial controls, Management should also ensure they are compliant with a recognised corporate governance code. 

Approaching Market/ Trying to List 

Companies that wish to become listed should give thought to appointing the right advisors. 

This can include Legal counsel, accountants, investment banks, and any specialist sector advisors. 

One advisor that is integral to a company becoming AIM listed is the Nominated Advisor. Companies that wish to become listed must appoint an AIM-approved nominated advisor, a NOMAD. There is a bank of NOMADs available from the LSE website.

A NOMAD’s job is to help companies prepare for flotation, but they will also decide on whether or not a company is suitable for AIM membership, considering the company’s financials and the integrity of the management team. 

Another key advisor in the process is the Broker. The Broker is responsible for any initial fundraising at floatation and for bringing together buyers and sellers. This can be the same firm as the NOMAD if you appoint a NOMAD that can perform both functions. 

Admission document

A pivotal part of the listing process is the production of an admission document. 

The NOMAD firm will guide you through this and ensure you produce the relevant admission information. This includes financial information such as audited financial statements, if available.

If the company does not require an audit, it may nevertheless add much-needed credibility to the company’s attractiveness to have the financial statements voluntarily audited, for a few years prior to the listing application.

The financial statements for the previous two periods should also be restated onto the basis that will be applied in future under AIM. For UK entities, this is under the International Financial Reporting Standards (IFRS).

Ongoing Considerations 

If flotation is successful, as stated earlier, there are a number of continuing obligations. 

A NOMAD and broker must be retained at all times. The NOMAD firm will work with you to advise on capital structures, dividend policy, etc.

There are also continuing reporting obligations, as previously mentioned, such as annual and half-yearly reports, as well as compliance burdens covering the reporting of significant transactions and disclosure of price-sensitive information. 

A key part of the continuing obligation is to make information available to investors and the public. The company website needs to make this information available, as well as disclosing the corporate governance code the directors have adopted and how that code is applied in practise. 

Further information

If you are considering raising finance through a public offering or any other means, our Technology, Innovation and Growth team or our Corporate Finance team will be pleased to discuss the processes involved.