“There is nothing wrong in listing on Aim in itself for many firms, provided that you have worked out that it is the right fit for your type of company in terms of reporting and cashflow requirements, but for some firms in some sectors the balance tips the wrong way for them,” said Nick Heather, partner of legal firm, Lawrence Graham, in London.
“The fact is that Aim does afford many companies the opportunity to raise capital on much less generally onerous terms than would a listing on the main stock exchange, but at a time of flux in an industry, as we have seen with the post-retail distribution review in the world of IFAs, such a listing may become unsuitable,” he added.
Launched in 1995 by the London Stock Exchange, over £30bn has now been raised through Aim through IPOs and capital-raising and many companies listed on Aim have made the transition to the main market.
With Aim companies currently coming from 37 sectors, 90 sub-sectors, and 26 countries, then, is there any more specific reasons why a sound IFA looking to expand its business should not do so through a listing on Aim going forward?
Lighthouse itself said that the onset of the RDR and increased litigation over potential mis-selling within the IFA sector had resulted in a far more uncertain trading environment than has ever previously existed.
In addition, it stated, many IFA businesses, are undergoing very significant restructurings of their processes and operations, in order to be able to trade post the RDR.
Given these changes, it said, it was becoming increasingly difficult to indicate reliably to the investment community what future terms of trade would prevail within the sector, and hence virtually impossible to construct reliable valuation matrixes.
Moreover, there were competitive factors at play, according to the firm, which pointed out that a low share price would hinder any efforts to expand through acquisition, or a potential sale, and that Aim reporting requirements placed it at a disadvantage to unlisted competitors, in that Lighthouse Group would be significantly adapting its business and operations, and premature announcement of plans and actions being taken could alert competitors and damage the group’s prospects.
A low share price, of course, could also have a more personal dimension on senior personnel than just the ramifications for acquisition or a sale, according to Philip Secrett, corporate finance partner for Grant Thornton’s capital markets team, as performance packages can often be predicated upon equity stakes in a firm, or future options on shares in it.
Having said this, with Aim’s regulatory model based on a ‘comply-or-explain’ option that lets listed companies either comply with the rules or explain why it has decided not to comply with them, the notion that such limited compliance would have such a major effect on the listing decision of most IFAs looks stretched, given that Aim had relatively few such rules, he added.
All the more so as, in any event, much of this reporting and regulatory burden is shouldered by the exchange-mandated issuer’s underwriter; the Nominated Adviser (Nomad), not to mention the requirement to have a stockbroker in place, and auditor, and a corporate lawyer.
Although the idea of Nomads has been criticised from some quarters as potentially creating a conflict of interest – as they are paid by the firms that they are supervising – Mr Secrett highlighted that it is very well understood by Nomads that their first duty is to the exchange, be it Aim or the LSE.
There is, though, a burden of associated costs, of course, that go along with this level of professional representation: a good Nomad could easily cost around £50,000 a year, as could a decent broker, while an auditing firm and a corporate law firm could end up charging much higher, depending on the degree of advice and work done.
There is also the issue of the amount of time that the senior executives will need to spend away from their company-centric duties, underlined Mr Secrett, not just for results announcements to the relevant shareholders and reporting bodies, but also for more ad-hoc announcements.
More specifically, following the introduction in February 2007 of Aim rule 26, every Aim company must from admission maintain a website on which a range of detailed information must be fully available free of charge, including: the number of Aim securities in issue (noting any held as treasury shares); the percentage of Aim securities not in public hands together with the identity and percentage holdings of its significant shareholders; and details of any restrictions on the transfer of its Aim securities.
In the event that the LSE considers that an Aim company has contravened any of these rules, it may issue a warning notice; fine the company; censure the company; cancel the admission of its Aim securities; and/or publish the fact it has been fined or censured and the reason for that action.
This said, to many, the level of censure overall, would not seem too severe. For example, in August 2007 the exchange undertook an exercise to assess the compliance with Rule 26 across all Aim companies.
Following this investigation the LSE took disciplinary action against nine Aim companies, resulting in the Aim Executive Panel fining them a total of £95,000 for failing to comply fully with the requirements of Rule 26. The fines ranged from £3000 to £15,000, depending on the seriousness of the breach.
On the other hand, though, there are substantial tax benefits that can be associated with listing, as Business Property Relief of 100 per cent may be available in respect of the transfer of shares quoted on Aim, subject to certain conditions.
These conditions include: the business must be a qualifying business (this means it must be engaged in trading, rather than investment, activities), and the shares must have been owned for a minimum period (normally, the donor must have owned the shares that have been transferred throughout the two years immediately before the transfer).
Looking ahead, Mr Secrett said there is no reason to believe that the IFA sector in particular is out of favour with Aim investors in the same way as the technology, media, and telecoms sector became when the internet stock bubble burst.
He said: “For a sound, solid independent financial adviser who weighs up the pros and the cons of listing on Aim, and who wants money to expand, or improve its existing operation, and which wants a less onerous way to do this than a listing on the main market, then Aim would seem to fit the bill as for any other smaller firm.”
Simon Watkins is a freelance journalist
Key Points
* A recent ‘delisting’ by a prominent advisory firm on the Aim stockmarket has raised questions about the suitability of such listings by the sector.
* Following the introduction in February 2007 of Aim rule 26, every Aim company must from admission maintain a website on which a range of detailed information must be fully available free of charge.
* There is no reason to believe that the IFA sector in particular is out of favour with Aim investors.
