Articles by McGrigors
30 August 2006
Encouraging growth is aim of junior exchange
(Published Aberdeen Press and Journal)
June marked the 11th anniversary of the launch of the Alternative Investment Market (Aim), the Stock Exchange's market designed for smaller, growing companies.
Like the firms on this market, Aim has grown significantly and matured in that time.
In its first year, 121 companies were admitted to the market, raising £ 94.8million.
Last year, this had risen to 519 new firms joining, raising £ 8.9billion taking the number of companies on Aim to more than 1,500 with a combined market capitalisation of over £ 72billion.
Why is Aim proving so popular? Perceived advantages include:
-
Access to capital markets and an alternative source of finance.
-
Enhanced public profile.
-
Potential exit route for investors in the company and allows founders to unlock some value.
-
Ability to reward and encourage commitment of employees through share ownership and the ability to trade shares.
-
Ability to use shares to fund a future acquisition.
-
Tax benefits for certain shareholders.
-
International exposure.
There are also drawbacks:
- Greater public scrutiny of progress and results where short-term issues can have an immediate effect on the share price.
-
Greater regulation and reporting requirements, particularly in respect of financial information and announcements.
-
Requirement to adopt stricter corporate governance requirements.
-
Time consuming and expensive admission process, whether or not the company is seeking to raise new money.
-
Cost of ongoing compliance with Aim rules and management time dealing with investor relations.
-
Requirement that directors and significant shareholders agree not to sell shares in the first year of trading if the company has not been earning revenue for a period prior to admission.
-
The market value may not reflect the underlying value of the assets of the company.
-
Volatility of the market and potential for lack of liquidity in the trading of shares given the smaller size of the firms on Aim.
The volatility of the markets was brought sharply into focus in the second quarter of this year where the 10% rise in oil and gas stocks in the first quarter was all but wiped out.
While the impact of volatility affects different companies to a greater or lesser extent, investor sentiment and sectoral swings can have a significant impact on companies' market value, which they have little control over.
There is a broad spectrum of companies on Aim coming from 37 sectors, 90 sub-sectors and 26 countries. An increasingly large number of international companies are joining Aim and more than 250 of the Aim companies are incorporated outside the UK. This international interest reflects an increasing awareness of the attractive environment of Aim for young international firms wishing to use the public markets to increase their global profile and fund further expansion.
The profile of Aim is also attractive to other sectors including oil and gas and this area has also seen a sharp rise in new entrants in the second quarter of 2006; 10 new admissions raising around £ 161million compared with four admissions raising just £ 19.5million in the first quarter. In terms of market capitalisation, oil and gas firms now account for 14 of the top 50 Aim companies.
A large part of the attraction of Aim is that it is significantly less regulated than the main market of the Stock Exchange and this lower level of regulation represents an increasingly attractive market for overseas companies for primary or secondary listings and oil and gas groups.
North-east firms will be able to find out if Aim could be suitable for them at an event next month.
McGrigors is hosting A Question of Aim at Aberdeen's Marcliffe Hotel on Thursday, September 14, to explore and debate the benefits and drawbacks of Aim against other markets and sources of funding.
The panel will include experts from McGrigors, the Stock Exchange, Ernst and Young and Panmure Gordon.
Anna Brown is a corporate partner at McGrigors and head of capital markets in Scotland. Anyone wishing to find out more about the Aberdeen Aim event should e-mail Sorcha O'Connor on sorcha.o'connor@mcgrigors.com
The frequency with which McGrigors is mentioned in the press is testament to the high-profile nature of the work we do. As well as this, our lawyers are regular contributors to the broadsheets and specialist publications ensuring the level of our knowhow is well known.