Guide to floating on AIM
For small and emerging companies seeking to grow and develop, floating on the Alternative Investment Market (AIM) is a very good way of raising capital, especially if they have exhausted their access to private funds. Investment in AIM companies tends to come with higher risk as they can be relatively new with less of a track record but they can offer investors the potential of significant returns.
AIM is a sub-exchange of the London Stock Exchange (LSE), and was created to help small and developing companies raise capital, usually in the region of £1million to £50million, by listing on a public exchange with simplified regulatory requirements. Since launching in 1995, AIM has helped 3,865 companies raise over £115 billion.
There are currently around 850 companies listed on AIM, 250 of which come from 26 different countries outside the UK, operating in 37 different sectors and 90 different sub-sectors. The 2002 Sarbanes-Oxley Act in the US substantially increased regulatory requirements for all publicly traded companies there, causing dozens of US-based companies to seek to list on AIM in London.
Although some companies use AIM as a springboard to the primary LSE the numbers doing so are low, and several companies listed on AIM have a market cap of over £1billion.
Why list on AIM?
The decision to become a public company is a very important one. Preparing for an AIM floatation takes considerable time and commitment and brings with it greater responsibilities. On the other hand, it provides long-term access to capital and a higher profile for a company. For companies at an early stage of their development seeking to go public and raise funds through an Initial Public Offering (IPO), AIM has several advantages over the Main Market.
A key advantage is that AIM regulatory requirements are less prescriptive. Financial reporting and disclosure requirements are less demanding: there is no minimum initial equity, level of profitability, company size, or market capitalisation requirement (unlike the Main Market, which requires an expected market value of £700,000), and companies do not need a three-year trading history.
Trading on AIM is supported by the FTSE AIM Index Series, which includes the FTSE AIM 50 UK Index, the FTSE AIM 100 Index, the FTSE AIM 100 Index, and the FTSE AIM All-Share Index.
There are also several tax incentives for private and corporate investors in AIM companies: tax relief relating to Capital Gains Tax, Inheritance Tax, Business Property Relief and loss relief on shares invested through Venture Capital Trusts (VCTs) or the Enterprise Investment Scheme (EIS).
Key requirements for listing on AIM
Once a company has decided to list on AIM, it must appoint a Nominated Adviser or Nomad. The Nomad will have extensive corporate finance experience and has an integral part to play in guiding the company through the IPO process and advising the company all the time it is listed on AIM. In many respects, the Nomad acts as the company’s regulatory guarantor for AIM.
The Nomad’s first responsibility is to ensure the company’s suitability to be admitted on AIM. This requires extensive due diligence of the company’s commercial, legal and financial health, including the sufficiency of its working capital, the adequacy of its reporting and governance structures, and the suitability of its management. Following quotation, on AIM the Nomad ensures the company’s regulatory compliance to the AIM Rules for Companies, and the company’s awareness of its responsibilities to investors and shareholders.
The IPO process for a company listing on AIM is similar to a Main Market listing, but with less stringent requirements. The Nomad will help the company attract investor interest and with its post-IPO agreements and liaises closely with the company’s other central advisers, including brokers, lawyers and accountants. Nomads often take a central role in managing and drafting the Admission Document and in preparing the company’s presentations to investors.
The key regulatory document used in an AIM IPO is the Admission Document. This details the company’s investment proposition and prospects, focusing on the company’s financial position, management team, business activities and growth strategy. The Admission Document contains similar information to the prospectus required for a Main Market listing but does not need to include a share price. It is the key information document that investors scrutinise before deciding whether to invest, and therefore needs to be accurate, relevant, and reflect the company’s professionalism in its presentation.
Smoothing the process
The company must demonstrate the completion of due diligence and verification of its documentation. Due diligence and preparation of the Admission Document are time-consuming processes involving meticulous attention to detail, and extensive collaboration between the Nomad, the company’s other advisers, and the regulatory authority. As the IPO gathers momentum key documentation needs to be shared with potential investors. To facilitate this process, increasing numbers of companies use a Data Room to manage and prepare their important and confidential information.
A Data Room provides a highly secure online space for confidential documents to be stored, managed and shared between the company, its advisers and potential investors, and where confidential collaboration, discussions and negotiations can take place. A Data Room has many tools that make the process less arduous and more efficient, such as monitoring what investors are reviewing and for how long, thereby enabling the company to engage positively with investors with a genuine interest. A Data Room can be used after the AIM admission process is completed, for further fundraising and other corporate transactions, such as M&A activity, as well as for day-to-day document management and investor relations.
Because of its size and complexity, having the Admission Document and supporting documents professionally produced is a great benefit to companies. Documents need to be accurate and up to date for examination by investors and regulatory authorities. Producing them is time-consuming and demanding: several advisers will review the documents, necessitating multiple updates and approval within a very tight schedule and to strict, legal deadlines. Being able to rely on professional support in producing the Admission Document can be a significant advantage.
Perivan has huge experience in producing AIM listing documents, producing more than any other company over the last five years with a 29.8% market share. In 2021 Perivan produced 61% of all AIM admission documentation published and 42% of all IPO admission documentation published, including Victoria Plumbing, the biggest-ever AIM IPO.
Perivan’s Data Room, Engage, is used by many companies to manage their important corporate transactions, investor relations, and daily business. If you would like to see a demo of how Engage can provide the solution to your Data Room requirements, or learn about Perivan’s market-leading IPO prospectus, annual report and investor & shareholder communications capabilities, please contact the Perivan team.