SMEs: what you need to know about AIM IPOs

Are you a small and ambitious company looking to raise capital? Have you thought about an AIM IPO?

Many private companies are financed by PE or debt funding from banks or other third parties, and an IPO on AIM might be a logical next step to consider in the funding process. AIM has been designed with a “light touch” level of regulation which helps privately held companies to go public with as little red tape as possible, with rules that are deliberately less prescriptive than those of the Main Market. The requirements are designed to enable companies at an earlier stage of their development to join the public markets.

But becoming a public company, and bringing in outside institutional and retail investors, is one of the most significant decisions that a company can make, and the pros and cons need careful evaluation.

AIM provides:

• a platform to raise funding and provide long-term access to capital
• increased profile and credibility (helped by increased press coverage and analysts’ reports)
• opportunity for early-stage investors to realise some of their initial investment
• a broadening of the shareholder base
• an objective market value on the company
• a currency (the company’s shares) to make acquisitions of other businesses
• an opportunity to introduce share-based reward strategies which help to recruit, motivate and reward staff and enhance employee performance.

In return for these benefits, AIM brings with it responsibilities to investors, employees and the market itself and these need to be taken into consideration when deciding whether to not to pursue an IPO on the AIM market.

For example:

• there are additional ongoing costs which need to be budgeted for, such as increased accountancy fees, and retainers for other advisers such as the Nominated Adviser (referred to as a Nomad)
• there will be more public scrutiny than previously, with which some companies might be uncomfortable
• there are AIM Rules, with which the Company must comply, which are additional regulatory responsibilities over and above these of running a private company
• the company will be expected to demonstrate appropriate levels of corporate governance given its size and growth profile
• directors may need to dedicate some of their time to communicate with analysts and institutional shareholders, which can be a distraction from the day-to-day business
• the company will be, to some extent, subject to market sentiment which can be influenced by a number of macro-economic factors, over which the company has no control.

Once a company has decided that a quotation on AIM is the right step, it needs to appoint a Nomad, which might be an investment bank, a corporate finance house or an accountancy firm, approved by the London Stock Exchange to act in such a capacity. The Nomad may also act as broker to the company.

The AIM market has a practical approach to entry criteria and regulation. It is the primary function of the Nomad to decide whether a company is appropriate for AIM, both at the time of IPO and on an ongoing basis, and the Nomad will have an integral role to play both in the admission process and in the company’s life as an AIM quoted business.

One of the Nomad’s principal roles is to assess whether the company is appropriate for admission to AIM, and when quoted, to ensure that the Company is aware of its responsibilities and its actions are fair and reasonable for all shareholders.

A range of other advisers, such as brokers, accountants and lawyers will also play important roles in the admission process, and beyond.

The company will work in close consultation with its advisers to prepare an admission document, detailing the investment proposition. This will include details on company directors, financial position, business activities and growth strategy.

There are no requirements in the AIM Rules for prospective companies to be of a minimum size, to have an established trading record or to have a prescribed minimum free float.

Once a company is admitted to AIM, it has to comply with the AIM Rules, which set out the duties associated with being an AIM company. It is the Nomad’s duty to ensure that the company understands and is able to adhere to these responsibilities.

Keystone has a team of highly experienced lawyers who have taken many companies through the listing process and have a network of recommended nomads and accountants etc. For a free initial conversation please contact Lance Feaver on 02033193700.